It sounds harsh, but it is a fact, which has been demonstrated time and time again that extending private loans to friends and family is a bad idea for the most part. If you want a good experience in terms of giving out money to friends and family members, then when letting go of the funds, you should consider it to be a gift or grant, which you don’t expect back. But if it’s loans they seek, then they should go to banks, or private lenders if their credit rating is not that great.
Here are some of the reasons why you should never fall into the trap of offering money to friends and family as a loan:
They are likely to be open-ended loans
Even though you may have a casual agreement concerning the timeline for the loan repayment, this is rarely respected and besides, the loan will never gain you any interest. In other words, your money will be out for an undetermined amount of time, and when it comes back, it will be the exact same money you had provided, and if you consider inflation, you have lost out!
Repaying the loan is never a priority
Since they are getting it from a friend or a relative, repaying the money is never a priority to them. This is because it doesn’t come with the kind of obligations and consequences that would have been present if the loan had been obtained from the bank or other private lender, which is not a friend or a family member. This means that you will get your money back at their convenience.
You will find it difficult to ask for the money back
It is never an easy task to ask for your money back from your friends or relatives. Not only does it look awkward, but there is also a possibility that you may put a strain on your relationship with them when you start to become more persistent that your money is to be repaid.
The borrower may come back for more
Due to the fact that you are blood relatives or very close friends, don’t be surprised if the person to whom you have lent the money comes back again, and asks for more money before repaying what they owed. You are likely to be taken advantage of, especially if you happen to appear sufficiently philanthropic. Simply suggest that they go to the bank or that they consider private lenders.
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