How To Loan Money To Friends

Need to know how to loan money to friends? People enjoy helping their friends during times of need. This usually does not involve lending them money, however lending friends money does not have to be a difficult process. The lending and borrowing of money are usually touchy subjects, because many times loans between family and friends do not end well. The biggest problem people face when lending money to friends is that they do not set clear rules. Issues with repayment and repayment in full usually come into play when there is a misunderstanding with the details of the agreement. Before you enter into a loan agreement with a friend, set up a clear and fair plan, and make sure you understand all of the possible risks involved.

  1. Only lend money to trustworthy friends whom you believe will repay you according to your terms and arrangements. No matter how much you may care about a friend, if you know that he is not a trustworthy person, or he has proven in the past that he is not a reliable person, then do not run the risk of entering into a financial agreement with him.
  2. Set up a contract. When you think of your friends, you do not usually think of non-trustworthy people who will take advantage of or not be fair in matters that involve you, and that's usually a correct sentiment. Most people who need to borrow money do not intentionally break an agreement for repayment, they simply mismanage their money or they do not have it at the time. To forgo any issues that will leave both parties uncomfortable, create a contract with clear terms. Make sure both parties sign and date the contract.
  3. Create fair terms and conditions that both protect and benefit you and your friend. Included in your contract should be a fair time frame for repayment that your friend can stick to. If you ask for your money back in an unreasonable amount of time, then you risk not getting all of your money back in the time frame you requested it. Decide how much and how often they will pay you back. For example, your friend may pay you back $100 every two weeks with the total being paid in a six-month time period. Be sure to include in the contract what dates the payments will fall on. Also consider interest rates and penalties for late payments.
  4. Don't lend money you don't have. No matter how obligated you feel to help someone, do not lend money to a friend if you have prior obligations. If you have something important already set up, explain to your friend that you are not currently in a position to lend money. This can include family vacations, bills or any times you feel like you cannot spare the extra money. Be wary of lending money close to a time when you will need it. If your big family vacation is in three months, it may not be wise to lend any money allocated for your vacation.
  5. Avoid cash transactions. Money orders are the best way to handle payments. They leave a clear paper trail that is pretty much impossible to contest. Checks pose a possible risk because if the borrower writes a bad check, you will incur the charges. Cash is the worst form of payment; it provides no paper trail and will result in more papers being signed since they will most likely want some sort of proof that they paid you.
  6. Do not hold the loan over your friend's head. If you are the type of person who will constantly bring up the loan, do not even bother lending the money; your friend will not want to be reminded of the loan all of the time. If he misses a payment, then bring it to his attention. If the payments are going as per the contract, then there really is no need to bring the loan up. If he does stop payment or is late on a payment, then rather than guilt-tripping him, refer back to the contract and take the necessary steps as outlined in the contract.
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