KEEP IT SERIOUS
If you don’t want to involve a lawyer but are keen to impress upon your borrower the seriousness of the loan obligation, then you can buy a personal loan template online for as little as $20-30.
A best mate called me in a bit of a panic. He needed to borrow some money… and fast! He’d accumulated a very impressive collection of parking fines and associated court costs.
He was calling from the local police station – and wasn’t going to be allowed out unless he paid up. Understandably he wasn’t keen to spend days or weeks behind bars. I rushed to the bank and then to the police station, bailed him out, and dropped him home. He was tremendously grateful and I felt like a bit of a hero, so it was all good.
Of course, in the rush we didn’t discuss how he would go about paying me back. Or when. I guess I assumed that it would be his highest priority, and didn’t want to push, even though I’d had to borrow some of the money I lent him. He assumed that there was no great rush. Quite a bit of time went by and things got a little uncomfortable between us. It started to affect our friendship. Anyway, eventually he repaid me, and now it’s ancient history.
But if I had to lend money to a friend or family member again, I’d do it differently. Before you lend money to a loved one, think about the following:
Can you afford it?
Check your budget. Will the loan put you under financial stress? Do you have any big expenses coming up? What will the impact be if they take longer than expected to pay you back …or if they can’t pay you back at all? It’s important that they understand what impact the loan will have on you.
Can they afford it?
Money can be a sensitive subject and it’s important to be respectful and non-judgmental, but you should go into the loan with your eyes open. Talk to them about how they intend to pay you back – where the money will come from – and make sure that you talk about a time period.
Write it down
If you’re considering lending a large amount – the sort of loan you would pursue legally if it wasn’t repaid – then you’ll need a formal loan document and should consider seeking financial and legal advice.
But for relatively small amounts, a simple IOU including the amount borrowed and the agreed timeframe for paying it back will normally do the job. Jot it down on a piece of paper, send an email, or shoot over a quick text – it’ll help avoid differences in memory and misunderstandings.
What are your thoughts?
Have you loaned money to friends or family? Did all go well or were there wrinkles? Is there anything else you’d like to know about lending to friends or family members?
Join the conversation — leave a comment below and let us know what you’re thoughts are.