The #1 rule of thumb is: Make a written contract stating the terms of the loan/gift you are extending. You, the lender, and the borrower/s should both sign it. The contract should suffice as legally binding. However, we make allowances for friends, families of close relations. A borrower who can't do repayments on time you have set for him, because of illness or unemployment, you both need to communicate those problems when they arise. So, we need to be discreet and careful that with borrowing and lending, a mutual agreement must be kept as promised with mutual respect and trust. And as the lender, be prepared for hard times-- and those times should be settled with genuine understanding and working out Plan B. Firmly avoid in taking your case to dispute with your borrower in the Small Claims Court. That won't be necessary. If you are the borrower: be trustworthy, make your repayments prompt. Keep your good name intact and unmarred as a good payer. Lending and giving money as a gift are two different activities. The gift should not be expected to be returned with favors or with kind. It's a gift with no strings attached.
Not to be dogmatic or anything, but there's a saying in the Bible that says you should teach people to fish rather than give them the fish. This is the appropriate way to deal with borrowers. I only lend money to people once or twice but once they turn into chronic borrowers, I show them how to make quick money on their own usually through freelance gigs. If they continually refuse to accept my suggestions, I tell them straightforwardly that borrowing will never solve their financial problems. They have to generate more income in order to pay their debts - not borrow some more.
An over-reliance on borrowed money isn't a healthy trait, in my view. That is unless, of course, they are very switched on with the way that money works and are merely borrowing to take advantage of carry trades, arbitrage opportunities or simply cheap money. If they understand the system and are simply using the money to create something of a far greater value, then I can see the appeal. Otherwise it's just a sign of bad financial education, indiscipline and a lack of integrity.
I have learned from my past mistakes that you should never lend money to friends and family, with the only exception to this rule being if you can afford to lose the money - because there is always the chance that they will never pay it back. I went through a spell of being quite generous with my money lending, and there are a few sums that I never recovered, so for this reason alone it is something that I simply will not be doing again, because I can't afford to lose the money anymore.
I never lend people money especially not to family. There's no better way to lose money than to lend it to family or friends. Yes you might have a verbal agreement that by a certain date the debt owed will be paid. But what happens when the person you gave the money claims that s/he for some reason can't pay? Sometimes I do give a few people small amounts of money and to be honest I don't expect them to pay it back and some do surprise me when they pay back the money.
I have a friend who is having a hard time financially and I was not in the position to loan her money. I trusted that she would pay me back, but I just could not do it. Instead, I got her signed up for some online working gigs and the money she has made is helping her get situated. Sometimes you just have to show people that there are opportunities available to them. She is now having fun making money online and is having an easier time putting food on the table and getting bills paid.
Over here, it is customary to lose friends over borrowed money. When a friend borrows money, he oversteps the friendship by not paying on time and sometimes by not paying at all. That's why our policy is not to lend money to friends and relatives for it will only ruin our relationship.
I think when it comes to lending money, it's one of the things I'm really allergic of. I have witnessed a lot of people lose relationships and gain enemies because of lending and borrowing money. This is why if I would ever need to borrow someday, i would rather borrow from an institution rather than from an individual person because things are more formal and you would really be obligated to pay because of the legal matters that you and the lending institution have both agreed to sign on.
When you lend, it is quite okay to do a background search to establish the creditworthiness of the borrower. If this is not possible or convenient, take trouble to make sure that you monitor what investment the money is being channelled to. Knowing their physical location or business premises is very important in this regard. You would be able to trace them in case of a default.
I personally do not lend money especially to friends or family. It's a family member depending on the situation I may just give him the money and not even want it back. But when it comes to friends or those salty family members who aren't quite close with or you know we're going to be responsible with the money in the first place I personally go to the process of getting a contract. The last time I went to the process of lending someone money was when a friend of mine needed to get herself a place to stay with herself and her child. I felt bad for her because she had that works in quite a while and it wasn't her fault that she had a newborn but in the same exact since the father of the child was not helping at all. So like a friend that I was I gave her the money to help her with the deposit and first month's rent I did not expect to get it back or anything of that nature. The only kick in the pants was it turned into needing money for a deposit first month's rent to needing money to turn on light, water, and cable and other things. For those things I thought about making a contract but then I realized that when it comes down to lending money there's no real true intent on paying it back there was just a chance for her to be able to try to get those funds never pay it back and then end up being a burden on me all together so I do not lend money out at all .
