Very Personal Loan
The most very personal loan could result in a very bad ill will amongst family.
Do you; or a family member, need to borrow money from one other? For such very personal loans among family and friends, consider this advice...
Put the loan in writing by creating a contract and all involved sign it. Yes, outline it all - the loan amount, the length of the loan, the interest rate, and when to make payments. Possibly start out with a small loan so the borrower can prove faithfulness in repaying a small loan, before entrusting all your money on a large loan. Why charge interest to a family member? So they can deduct the interest and you can have a tax loss should the loan go bad.
Did you know that banks have less defaults on the repayment of loans than loans from family to family members? About 3% of consumer borrowed loans go bad. How many family members do you already know who have lost money loaned to relatives - You may have experienced this situation yourself.
The IRS views loans that are forgiven as a "Gift" if limited to $13,000 or $26,000 if you are married before the gift tax takes effect. Make sure you talk to your tax preparer about loaning money and get all the current details.
We love our family, and due to the current economy more family members are sure to loan money to family- thereby taking a high risk the loan will not be paid in full. The first thing to consider is "Why the family member needs a loan"? Is it really worth your hard earned money and the risk to supply money for a loan for a vacation retreat or cruise or some other frivalous event? Do they need a loan because they lost their job and the bills are due or a more serious problem. Could they just need some financial advise or be on a budget instead of seeking a family loan.
We all have family who need money to start a business or a loan to make a down payment on their first home and we want to help make it possible. But conside the odds of losing your hard earned money, money that you may drawn out of your savings account or retirement fund. Warning, take precautions if you are entering your middle age and are facing retirement on a limited income, not to mention the cost of living, health care, and other factors will be putting a crimp on your way of life on a limited income.
Lay it on the line and be honest with how much you are able to help with a loan. Consider a small loan until trust is established by having them repay a small loan first so this will alert you to any potential high risk factors. And in the end if the risk is too great and you don't even want to consider loaning to family - just blame your "NO" decision on the economy and problems beyond your control. Either way, family loans and money do not go well together. After all money is the number one issue that causes stife in many marriages, and hence may cause strife if not paid in full. Proceed with caution when confronted with family loans and weigh all factors before releasing your hard earned dollars.
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