Five Do’s and Don'ts While Lending to Friends & Relatives

Some things are easier said than done! And one of them is advising to navigate in terms of lending to your friends or family. Lending money to friends or relatives can be an emotional decision, and sometimes, it is also hard to say ‘no’ to your loved ones when it comes to monetary assistance.

An emotional decision can sometimes be tricky as your gesture of goodwill will go waste, and your efforts can lead to misunderstandings or financial loss. So, to pull yourself out from such emotional barriers here are five rules you need to follow while lending money to friends or relatives:

  • Ask yourself if you can afford it – You must first think about your financial situation before lending money to a friend or a family. Because:
    • This can put a strain on your current finances (or)
    • You might end up sacrificing a lot to help balance your expenses.

Hence, it is better advised to avoid lending in such situations. However, on the other hand, if you are having surplus funds or no debt, then you can perhaps help out your friend.

  • Ask for collateral and charge interest – Money can ruin relationships. So, for the sake of the relationship, it is better advised to maintain clarity right from the beginning. It is also advised to control emotions with friends and family, as they might take things casually. To avoid this, better ask for collateral and discuss a fixed rate of interest against the loan amount lent.
  • A written agreement can come to your rescue – This might sound weird or difficult to put into practice, but a written agreement can help clarify any misunderstandings and responsibilities for both parties. If any unfortunate event, where you have no other option left and need to sue them to get your money back, then this written agreement can come to your rescue!
  • Don’t drive away by emotions – You can lend money to your friend or family when you feel that their situation is genuine. But on the other hand, you should also consider their repayment ability. For this, you need to find out how much are they earning and what other financial commitments they are obliged to.

You need to stay grounded regarding your emotions, especially during such situations. Unfortunately, a few borrowers can take these loans casually as there are no strings of interest liability attached, which may further not lead to any legal complications.

  • Don’t force yourself on money matters – Remember that, you should not lend money only out of a sense of obligation. If lending does not make any sense to you, then simple, don’t go ahead with it. Also, if you are aware of your borrower’s liabilities or their poor credit history, then you must accept that the borrower will not repay. Hence, it is better advised not to lend money to him/her.

Also, as a lender, you have all the right to know for what purpose the money will be utilised. If the reason seems invalid, then you can straight away nod and say ‘no’ to lending, as the decision of lending the loan is entirely yours.

Conclusion

If you follow the above-mentioned rules, you will surely protect both your money and your relationship with your family member or friend. So, if your friend or a family member is in dire need of cash, you can suggest a non-banking finance company (NBFC) called Vivifi India Finance Private Limited.

Vivifi India which is registered with the Reserve Bank of India (RBI) offers loans through its loan offering product called FlexSalary. With FlexSalary Instant Cash Loan, your friend or relative can avail benefits such as:

  • No collateral
  • No prepayment and other hidden charges
  • No-fixed EMIs
  • Pay interest only on the amount used

Let your advice help your friend or a family member when they are in any monetary crunch.