Don’t make lending a family affair

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

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 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 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 I’m Kristin Arnold.