In 2012, I was quoted in US News on the topic of the best way to help family members who may be struggling financially (to lend or not to lend?). With the unemployment rate still being high, I think this topic is even more important now.
You’ve probably heard again and again not to lend money to family members or if you do, do not to expect it back. This is the general wisdom, but what if a family member has been unemployed or has had health issues for a while? I will not say never lend money to family members, but I will say protect yourself if you do.
Here’s how:
1.) Be sure that there is an understanding that this is a loan. Everyone hears the word loan in the beginning when they need the money, but when it’s time to pay it back seem to have heard the word gift. Have a candid conversation with the person, make sure they understand that you are only doing this because they have had a difficult time and that you fully expect to be paid back.
2.) Get it in writing. Document the conversation and set up terms for repayment before you hand over any money and have them sign it. You are at your strongest point before you give them the money and writing everything down will further enforce that you want to be repaid.
3.) Charge interest if possible. If the person got a loan anywhere else, they would be paying interest, so why shouldn’t you charge interest? You can charge a lower rate of interest, but this will also provide incentive for the loan to get repaid sooner.
4.) Be prepared to stick to your guns. As soon as the family member gets back on their feet or the repayment period starts, really follow up with them to receive repayment. Don’t take excuses and remind them of the binding document that they signed.
We all can use a little help now and then, follow these tips and you will be able to help without regretting it down the road.
Black Enterprise Columnist Jennifer Streaks is a Financial Expert, Author & Pundit. Continue the conversation by following her on twitter @JStreaks or visiting her website at www.JenniferStreaks.com.