How to loan money to friends without losing your friends.
It is important to understand that the moment a person loans another person money the borrower has the real power. While the loaner might be able to muster enough force to make the borrower pay, it is the force that has the power in that instance. After repayment both parties can enjoy a greater degree of trust in each other. However a lack of repayment or disagreements about it can result in a great number of extreme hurtful problems.
The loaner has the power before the loan has been given. They should see it as potential line of credit, on that can be built up and hurt. The loaner should realize that they might never see the money they are loaning to the other person again, but they can take steps to minimize that risk.
1. Before loaning any money ask the person trying to borrow how and when they expect to be able to repay the money. The loaner should not loan out more than they can afford to lose. The loaner should also consider the debtors history with similar loaners. If the debtor already owns the lender, the lender should probably collect that debt before giving the debtor another.
2. Be very clear about the debt itself, how much it is, and when it is expected back up front. Sometimes it is helpful to have this part in writing especially if it is a large amount. The lender should be clear about what happens if the debtor fails to pay.
3. The lender should remind the debtor of the debt about two to three weeks before it is time to collect it. That gives the debtor a chance to make sure it's ready.
4. If the debtor cannot pay back the debt as intended, consider helping the debtor get a job or offering to let them work it off in another way or accept some other form of payment. Helping the debtor get a job is of course the best way, that gives the lender a potential place to borrow from should the need arise. If the debt is going to be worked off the terms need to be clear.
This works in small circles of friends but the large banks do things a bit differently. Asking to borrow money from someone is something they should take as a complement from someone with good credit or no credit, but not someone who already owes money.
The loaner has the power before the loan has been given. They should see it as potential line of credit, on that can be built up and hurt. The loaner should realize that they might never see the money they are loaning to the other person again, but they can take steps to minimize that risk.
1. Before loaning any money ask the person trying to borrow how and when they expect to be able to repay the money. The loaner should not loan out more than they can afford to lose. The loaner should also consider the debtors history with similar loaners. If the debtor already owns the lender, the lender should probably collect that debt before giving the debtor another.
2. Be very clear about the debt itself, how much it is, and when it is expected back up front. Sometimes it is helpful to have this part in writing especially if it is a large amount. The lender should be clear about what happens if the debtor fails to pay.
3. The lender should remind the debtor of the debt about two to three weeks before it is time to collect it. That gives the debtor a chance to make sure it's ready.
4. If the debtor cannot pay back the debt as intended, consider helping the debtor get a job or offering to let them work it off in another way or accept some other form of payment. Helping the debtor get a job is of course the best way, that gives the lender a potential place to borrow from should the need arise. If the debt is going to be worked off the terms need to be clear.
This works in small circles of friends but the large banks do things a bit differently. Asking to borrow money from someone is something they should take as a complement from someone with good credit or no credit, but not someone who already owes money.