Deciding whether or not to give a family member a loan can be a tough call to make. It can really put you between a rock and a hard place. I know because I’ve been there several times.
Thankfully, the family members we’ve lent to are reasonably reliable, and can be depended upon to pay us back, that is, unless something catastrophic were to happen. However, in the process of making such loans, I’ve learned that it’s important to be prepared to…
I don’t like to push family members for payment on loans unless it’s absolutely necessary. An occasional jogging of the memory or question about payment, typically suffices. However, I’ve found that it often takes months to get full payment on a loan, so I feel better going into a loan situation prepared to wait. That way, if I’m paid off earlier than expected, then great…and if not, well then I’m ready for it.
Unless you’ve got more money than you know what to do with, you might have to be ready to worry a little bit about your cash while it’s away from you. Now I’m not saying that I’m worried about eventually getting my money back, but let’s face it, in my mind that money is never safer than when it’s within my realm of control, so as long as it’s under someone else’s jurisdiction, I’m going to have certain qualms about its safety.
Keep Your Mouth Shut
This may be one of the hardest aspects of lending money to family members for me to handle. Lending them money only to watch them then make poor spending decisions or throwing it away on frivolity really burns me up. But I have to reason with myself that if I don’t like it, I shouldn’t make the loan in the first place. And as long as they pay me back, it’s their decision as to what to do with the money.
Making comments or pointing out the poor decision-making in their personal finances would likely do little to further our relationship, and probably just create animosity over the fact that I’m trying to control them by telling them how to spend.
Sometimes when it comes to family, all you can do is hope, pray, and have a little faith. While sometimes we’re let down, I find that if I can’t trust in my family members, I might as well hang it up when it comes to the rest of the world. And if I’m not prepared to have some faith in them getting around to paying me back sooner or later, I’d better not make the loan initially.
Safeguard Yourself Just in Case
I don’t want to sound like a hypocrite here, following up the “Have Faith” portion of the article with the “Safeguard Ourselves Just in Case” section. By safeguard, I’m not referring to the chance that a family member will default on the loan (although, I guess that’s a possibility), but we sometimes take certain things for granted — like a family member being here tomorrow.
While it’s a morbid thought, it’s an aspect of inter-family loans that should be considered. What if that family member passed away some time before he or she paid a loan back in full? What if he or she hadn’t mentioned that loan or the specific loan amount to anyone else?
Who would pay me back? How would I have proof of the loan?
This is why, though I don’t go all out and have any sort of loan agreement signed, I do write “Loan” in the memo section of the check I write, just to ensure that there is some sort of record — albeit minor — that this money was given in expectation of it at some point being returned in full, whether it’s by the family member or his or her estate upon their passing.
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