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Things to keep in mind before lending money to a family member or a friend

A loan to a family member or a friend is usually unsecured. The terms and conditions are undefined or hazy and demanding payback is difficult. And if the loan goes bad, the relationship also sours. Moreover, such a loan is usually interest-free. Make sure lending to a family member does not become a headache.

“Neither a borrower nor a lender be; for loan oft loses both itself and friend.”

The advice by Polonius, the chief counsellor to King Claudius in Hamlet, had good reasoning behind it.

A loan to a family member or a friend is usually unsecured. The terms and conditions are undefined or hazy and demanding payback is difficult. And if the loan goes bad, the relationship also sours. Moreover, such a loan is usually interest-free. This means you lose money.

So, most people flinch from giving financial help to their close ones. But what if you draw up a legal document clearly defining the terms and conditions of the loan? This way you can help your friend as well as protect your interests .

There are two ways to do this – a promissory note and a detailed loan agreement . Weiterlesen