Lending to Friends and Family: Dos and Don’ts

The topic of lending money to family and friends is a common dilemma many people face. While it can be a gesture of goodwill to help someone in need, there are important factors to consider before making the decision to lend money. According to a recent study, nearly one-third of adults provide financial assistance to someone they know.

When considering lending money to friends and family, it is crucial to establish boundaries and consider the potential financial and emotional impact. Creating a loan agreement can help avoid misunderstandings and legal issues down the line. Additionally, it is important to only lend money to people you trust and can afford to lend.

On the flip side, there are key “don’ts” to keep in mind when lending money. It is essential not to lend more than you can afford, not to let guilt drive your decision, and not to lend someone your credit.

Co-signing a loan can impact your credit score, and in the worst-case situation, make you fully responsible for the loan’s repayment should your friend/family member stop making loan payments.  So it’s important to weigh the risks carefully when considering co-signing a loan.

In conclusion, while lending money to loved ones can be a compassionate act, it is crucial to consider the potential risks and implications. By following these do’s and don’ts, individuals can navigate the tricky waters of lending money to friends and family with caution and care.