Are you in a bad situation and think that personal loans can help you out? Or have you been approached by a family member asking for a personal loan? Sometimes an unsecured loan between family members is the only way you can pull yourself out of a desperate situation, if you are the borrower. If you are the lender, it may be the best way you can help a loved one who has gotten into terrible financial shape. If you are considering this option, there are a few things you must keep in mind:
Things to Remember for the Borrower
If you are approaching a family member for an unsecured line of credit, be sure to demonstrate your ability to pay back the loan and the responsible actions you will take when you spend the money. For example, approach with a written plan in hand with a repayment schedule already charted out. Be prepared to explain how you got into debt and the exact amount you will need to get back out. Be respectful and treat your relative as you would a loan officer; after all, they are putting themselves at great risk by making any personal loans. Finally, make sure you spend the money for the purpose it was given; for example, pay the credit cards and don’t take a sudden trip to Hawaii.
Things to Remember for the Lender
If you will consider personal loans to family members, you also need to make sure to protect your own assets. Make sure you can actually afford to give a cash advance and that if your relative never pays it back, you will still be financially solvent. Never lend more than you are willing to lose, and make sure you put the terms of the personal loan in writing. In this way, you can avoid the “It was a gift!” “No, it was a loan!” tug-of-war that has wrecked many families. Finally, you will need to let it go and hope for the best; if you can afford to, some financial experts advise gifting the loan if you feel your borrower has acted responsibly and won’t get into debt again.
Things to Remember for Both Parties
Lending and borrowing between family members is an emotional ordeal. It is not as clear-cut or as impersonal as securing a loan from a bank. But if both parties act responsibly, it can be a good temporary solution to financial woes. Both parties should draft the loan contract and sign it, and both parties should follow up in a respectful manner. For borrowers, this means making timely payments, and for lenders, this means you must refrain from directing and controlling the lender’s every move. Together, you can get out of a bad situation and strengthen your family ties.