In times of need be it for money or emotional support, we always look up to our family first. In case of borrowing from a family member, you can avoid the lengthy documentation process.
With a lender, it is mandatory to fulfil all the documentation requirements and adhere to their terms and conditions. Every financial institution requires your documents and some tedious processes to cater to.
For many people, borrowing from a family member is a much more feasible option than borrowing from an external source such as a lender or bank or any other financial institution.
The right analysis for lending financial
In the case of lending money, if you are at the giving end, you have to be careful and take care of a few things.
Many people, instead of borrowing from a family member, plan to borrow loans with guarantor non homeowners from their landlords and meet their funding requirements. It is not important to come to you every time. Mostly, it can lead to a misunderstanding during the lending process.
It is better to avoid any misunderstanding or confusion at the beginning rather than breaking ties due to any confusion in the middle of the process. It may hurt your relations and finances both.
Important points for lending
If you are lending money, you have to be careful about the following points:
- Maintain the difference between the gift and lending
Sometimes, if you are lending money to a close relative or a friend, they may confuse it with a gift from your side and may not consider repaying it. They may take the whole loan process casually.
Therefore, it is essential to clear out things at the beginning. Your message should be very clear and should not stand a chance of any miscommunication.
- Find other ways to help
It is kind of your to help your family in monetary terms. But if you do not lend the money, you can think of some other ways to help your family such as offering them employment or becoming a co-signer for their loan approval from an external source.
Becoming a co-signer may involve the risk of impacting your credit score in case the borrower fails to pay back the original amount.
If you do not want to offer money considering your future relationship with them, you can help them in procuring funds in any other way.
- Keep in mind the legal formalities
If you have decided to lend money to your family or friends, make sure you are aware of all the legalities involved in the process. Also, sound off all the legalities to the borrower as well.
To secure your transaction, the best way is to hire a legal attorney who will make you aware of all the risks involved at every step.
You have to also know the purpose of borrowing before you lend them the money. Once you have taken all the measures, you can go ahead with the lending process.
- Go online
To ensure the security of your transaction, you can choose an online medium such as online banking. This will keep a record o your transaction and leave no scope for any conflict.
If your family is insistent on getting cash, you can pay a small part in cash and the entire remaining amount through online banking.
- The interest rate
Mostly, the amount that you lend to your family or friends is tax-free; hence, the interest rate is totally up to you to decide.
Most people in need of money are willing to borrow from a family member or a friend to pay a lesser interest rate than the prevailing rates in the market.
Thus, if you are charging an interest rate on the amount, you can decide the tenure according to you. The tenure and interest rate must be agreeable by both parties in order to run the process smoothly.
- Learn to say no
In case a family member or a friend approaches you and does not have the required funds to lend them, do not be hesitant in saying no. Communicate your condition politely to them and do not be harsh in your approach.
Moreover, if they are having bad credit, you can give them the option of opting for very bad credit loans from direct lenders in the UK with no credit check. Instead of coming to you, this is a good loan option.
Be clear and polite with your reasons and offer them help in finding other alternatives for their funding.
Conclusion
You should always be careful in lending money to your family or friends. Consider each and every point before getting into the lending process.
