Should I lend money to my family?

Loans between relatives are prone to misunderstandings. Of course you want to help your family, as they would want to help you. But to protect your interests, it's best to treat the potential loan as a business transaction. The last thing you want is a family conflict. If you lend to someone who is irresponsible with money, you may end up getting burned.

What to ask

There are several questions you should ask yourself before agreeing to lend money to your relative. These questions include:

  • Does she have a steady job or clear career goals?
  • Has he borrowed money from family before, and has he paid it back?
  • Is she responsible with her money?
  • Can I trust him or her?

Do you have money to lend?

Go over your own finances and see if you have extra money to lend out. Don't commit if it will put a strain on your own savings. If the amount is just a few bucks and you won't lose sleep over it if your relative doesn't pay you back, then go for it. If it's more than a few bucks, consider drawing up a simple contract.

If you don't have the money or don't want to get involved, politely decline and say you don't have it or that you are going through a rough financial time yourself. Don't feel the need to explain in detail the reason why, just leave it at that.

Offer other ways to help

Instead of lending money, offer to help your relatives save money in other ways. Time is valuable too. You could offer some of your time in exchange for your relative's time or expertise. Here are some ideas to explore:

  • Offer to watch their kids for a couple of hours a week to save them money on day care
  • Help them find great coupons and sales
  • Hire them to trim your trees, fix your faucet, wash your windows etc.
  • Watch for job openings that may be a good fit for them

If you're good with numbers, offer to help them organize their finances -- as much as they're comfortable revealing to you. Share your tips on building a budget, saving money, and cutting down everyday expenses like groceries, utilities and clothes.

Tactfully ask if they often run up bank overdraft and ATM fees. Help them find the best bank -- one with low fees and high interest rates.

Is their credit card debt out of hand? Are they overspending on gifts, name brand clothing or going out? You get the idea. You can help your relative regain financial footing by sharing your money management skills.

Think it through

Lending money to a family member is a very sensitive issue, especially if you are talking about large sums of money. We've all heard the stories of families that have been torn apart over unpaid debt. Ask yourself this, if your relative doesn't pay you back, will you be financially strapped? Will your relationship be hurt? Do you think the borrower might be offended if you ask up front when you will be paid back? If you think any of these scenarios could happen, don't risk your relationship. Instead, offer to help out in a different way.

What do you think? Would you lend money to someone in your family?

This Guide to Money answer includes the topics: Live, Support.

Ana Gonzalez Ribeiro, MBA is a Personal Finance / Business Writer based in NYC.

 
Leave a Reply

Name (required)