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Loaning Money to Relatives

[Feb 26, 2010.]


Many families are helping each other with financial expenses as the economy continues to struggle. Some people have moved back in with family members to share expenses, while others are pitching in on child care or home repair work. You may even have a family member come to you, hat in hand, asking for a loan. Should you lend money to a relative?

Repeat Offenders

Family dramas can result in all kinds of tension and guilt. Avoid letting yourself feel pressured to give a personal loan to a family member who repeatedly asks for money. You may have been burned in the past by loaning money that you won't ever see again. Why set yourself up for another situation that results in anger and resentment? Just say no and avoid the headaches.

Write a Loan Contract

When choosing to lend money it's always a good idea to set up a formal loan contract. This can be done by writing down the names and addresses of the two parties involved, amount borrowed, interest rate, and terms for repayment. Both of you need to sign and date the contract to make it official. Make sure you both have a copy.

If you need a little help with setting up the arrangement, consider using Virgin Money. This Web site allows you to lend money to friends or family by formally structuring a loan.

Alternatives to Loans

If you, too, are in a tight financial spot, you may feel bad that you can't lend money. Consider offering to help your family member in other ways, such as:

  • Providing a meal from time to time

  • Watching her kids when she can't afford a babysitter

  • Giving her furniture, appliances, or other items that you no longer need

  • Helping her review her spending habits and set up a budget

No Hard Feelings

Before opening your wallet, think about the long-term repercussions of giving a personal loan to a family member or close friend. Do you honestly believe that the person has the means--and intent--to repay a loan? If not, then it's best to avoid giving a loan to avoid damage to your relationship.

If you really want to help that person, decide whether it makes more sense to give a financial gift with no strings attached. That means you won't bring up the money at every holiday dinner.


About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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