Editor’s note: This is a transcript of the audio file.
It’s not a family affair when it comes to lending money. I’m Kristin Arnold with your Bankrate.com Personal Finance Minute.
It’s not necessary the legalities most experts caution when they advise against lending money to family members. Legal issues are easily addressed, but other problems like damaged relationships between family members can’t so easily be repaired.
Consider this – if a family member is coming to you for a loan, instead of a bank, ask yourself (why)? Did the bank determine they were a risk? If you believe a relative is coming to you because professional lenders would reject the application, then be prepared to utter this phrase at some point: “I won’t get my money back.”
Nevertheless, if you decide to lend to a family member you can use an online resource such as LendingKarma.com to purchase a standard loan agreement for a small fee. Next, prepare a contingency plan for what happens if your family member defaults. Collecting money owed can be aggravating for you and embarrassing for them – so both parties need to keep the line of communication.
For more personal finance news, visit Bankrate.com. I’m Kristin Arnold.