Editor’s note: This is a transcript of the audio file.
Lending money to loved ones could be a gesture of good will — or it could be disastrous to your own personal finances, depending on the circumstances. I’m Claes Bell with the Bankrate.com Personal Finance Minute.
When a friend or family member asks for financial help, you may be tempted to agree right away. Think carefully, though; once a loan is made, it’s never a sure thing you’ll see that money again, and that could sour your relationship with that person.
One way to keep that from happening is to only lend out money you’d be willing to give as a gift. That way, if the borrower never pays you back, you won’t be disappointed.
If that won’t work, treating the loan as a business transaction can help ensure you get paid back. For instance, ask for regular payments on a set schedule, and record them just like a bank would.
Lastly, don’t endanger your own financial security to make a loan. If you end up in debt or behind on your retirement saving, you may end up needing to ask for a personal loan yourself.
For more on this and other personal finance topics, visit Bankrate.com. I’m Claes Bell.