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How to lend money to loved ones

By Kemberley Washington ·
Friday, March 14, 2014
Posted: 6 am ET

It is a question many of us simply dread: "Can I borrow some funds?"

Before giving your hard-earned cash away, ask yourself, "Can I afford to live without this amount?" If you already have earmarked funds for bills and other expenses, it is not a good idea to lend it.

If a family or friend asks to borrow a large amount, consider gifting them a smaller amount. This way, you eliminate the possibility of being short of funds when you really need the cash.

Put it in black and white

This may seem over the top, but getting your loved one to agree in writing to loan terms is extremely important. Before giving up your cash, discuss payment terms, your expectations and other pertinent details related to the loan.

Document the details in the form of a promissory note. A promissory note simply documents the payment terms, amount due, interest rate and other information. Don't forget to have both parties sign the note.

Know when to fold

If you have helped a loved one and he or she has neglected to repay you, at some point you will have to let it go. It is not a good idea to stalk your loved one at the family reunion years later, or even to monitor his or her impulsive purchases.

Consider it a blessing to be in a position to bless others. Learn from your experience and move forward. However, think twice before lending your hard-earned money next time.

Kemberley Washington is a professor at Dillard University in New Orleans and certified public accountant.  She is the author of "Let Your Budget Inspire You!"  Follow her on Twitter: @kemwashcpa.

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Scammed More Often Than Not
March 15, 2014 at 8:17 pm

If you have family or friends that are asking to borrow money, or to get you to back them in a "business" venture, run, don't walk, as fast as you can! If they are in a position to have to "borrow" now, they will most likely never be in a position to help you later should the need ever arise. If you can afford to front them a few bucks, by all means do it but do not take food off your family's plate to help those that will not, do not, help themselves!

March 15, 2014 at 7:09 pm

Never lend more than you can afford to lose.

Don Callahan
March 15, 2014 at 6:59 pm

This is bad advice. You don't lend money to love ones and you don't cosign for
anyone. This can create hard feelings and you have nothing to gain. If you can afford it give it to then. speaking from experience.

Albert Colburn
March 15, 2014 at 4:42 pm

If your going to lend money to friends or family, consider it a gift. Don't lend money you can not afford to give away. If the person pays it back well OK, but otherwise consider it fortunate you were in a place you could help!!! This will save a lot of good family relationships.

Linda Monson
March 15, 2014 at 4:24 pm

My father loaned us money for our first house and my husband (x now) felt offended about the little booklet he got for the payments to my dad. My dad knew how people can abuse loans and was wise to do that.
I've heard it said that a good way to get rid of someone you don't want around is to lend them money:)

March 15, 2014 at 2:43 pm

I Guess I got lucky, Loaned money to a brother and sister, got it back from both with interest,But if your family is losers like other may not want to do that

March 15, 2014 at 2:16 pm

"How to lend money to loved ones?" In one word-DON'T. If you've got money to burn and you want to give some to a loved one, go ahead. But don't make it a loan unless you're prepared to put the person into default (with all that means and entails) if the money isn't paid back.

March 15, 2014 at 12:33 pm

Amen. I lent money to two people....(stupidly) and never saw a red cent, let alone with interest. One friend borrowed $25,000 over the course of a year and then gave a big chunk of that to her church and friends. Now she's crying the blues and I'm ignoring it. The other one was in desperate need of a vehicle. Since I had two cars, I sold her one of them for $200.00. The agreement was $50.00 a month for four months, no interest. Never saw a dime there either...but I got to listen to all the fabulous sales she caught at Macy's. Needless to say, both got kicked to the curb. However, I'm thankful that I had the funds and could afford to kiss it goodbye....NEVER AGAIN!