Borrowing Money From Family can be a tricky business to say the least. When you borrow money from say, a bank, and you are unable to make your payments they will simply come after you for collateral. But what happens if you lend money to a family member and they are unable to pay you back? Are you going to go and take their car? Of course not. This is what makes lending money to family members so difficult.
If you are planning to lend money to any family members, you need to be prepared to say goodbye to that money forever. In most situations the odds of you being paid back are quite small, so you need to be aware of that. Since lending money to family members can be difficult, there are some tips to help make it easier.
1: Never lend out money that you need or want. If you yourself are on a tight budget you can not afford to go giving money to friends and family. It may sound harsh but you have to come first, if you go broke who is going to help you? As I stated above, any money you give you need to be prepared to never get back. So if you have no money to spare, then you can not give any away.
2: Assess the risk involved. When someone is Borrowing Money From Family they will of course tell you they will pay you back. But you need to assess the situation they are in to see if they can pay you back. Every circumstance is different, but if that family member has a history of not paying back loans or are reckless with their money, why would you lend it? Make sure they are able to pay you back, or at least make sure you know what you are getting into.
3: Never co-sign on loans. In certain situations family members may require a co-signer for a loan. The bank may not like their situation enough to give them a lone unless they get someone to co-sign for them, and so they may turn to you. However, it is advised you do not co-sign on loans. It puts you at risk for having to pay back the money should the other person default on their payments, money you may not have.
4: Give money freely as gifts. Seems a bit counter productive since so far I have been saying to be careful when people are Borrowing Money From Family. But that is something we forget as we age. When we are teenagers we often get money as gifts, but we really do not need it. When we grow up and actually need the money, nobody will give it to us.
Give your adult children and family members money for birthdays or holidays, if you can afford to. Not only can it help them out, but it also gives you some leverage should you ever be forced to deny them a loan. So it ultimately helps both you and your family members.