When your relatives or friends are struggling financially, lending money to them can be a kind gesture. However, it can become troublesome if your efforts to assist result in conflicts or you encounter financial problems as a result.
Truth is, we have all found ourselves in a situation where we could not say ‘no’ to our loved ones when they sought monetary assistance. Unfortunately, this is an emotional decision which comes with its consequences.
So, what do you do when loved ones borrow money from you?
Here are 5 tips you need to follow while lending money to friends or relatives:
1. Ask yourself if you can afford it
Before lending money to a friend or a relative, you must first consider your financial circumstances.
How far can it stretch your existing financial situation? Therefore, it is best to refrain from lending under these circumstances. On the other hand, if you have extra money or no debt, you could possibly assist your friend.
2. Ask for collateral and charge interest
Relations can be ruined by money. Therefore, it is best to keep things clear from the start in order to preserve the relationship.
It’s also a good idea to keep your emotions under check around friends and family because they can take things too lightly. Asking for collateral and negotiating a fixed interest rate against the loan amount are the preferable options to prevent this.
3. Always have a written agreement
Although it may seem strange or challenging to implement, a written agreement can help both parties understand each other’s obligations and resolve any misconceptions.
This written agreement may be helpful to you if an unpleasant situation arises where you are left with no choice but to sue them in order to recover your money.
4. Don’t be led by emotions
If you believe your friend or family member’s condition to be genuine, you can lend them money. However, you should also take into account their capacity for repayment.
To do this, you must learn how much money they make and what other financial obligations they have. Particularly in these circumstances, you need to maintain your composure when it comes to your emotions.
Unfortunately, because there are no strings of interest obligation tied to these loans, some borrowers can take them casually without risking any legal repercussions.
Additional Reading: Personal finance institutions in Kenya
5. Be prepared for the worst
Keep in mind that you shouldn’t lend money merely out of a sense of obligation. Don’t lend money if it doesn’t make sense to you, plain and simple.
Additionally, you must accept that the borrower won’t repay if you are aware of their debts or poor credit history. Therefore, it is best to refrain from lending money to them.
Additionally, you have every right to know how the money will be used as a lender. The choice to lend the loan is fully up to you, so if the justification appears unjustified, you can simply nod and refuse.
If you follow the above tips, you will surely protect both your money and your relationship with your family member or friend. Incase, your friend or a family member is in dire need of cash, you can suggest a quick credit facility called Hela Pesa.
Hela Pesa which is registered with the Central Bank of Kenya (CBK) offers Instant Salary Advance Loans through its Hela Pesa Loan App. Your friend or relative can download the App, register for free and Apply for quick cash.