Lending Money On A Personal Level By Billy Stavridis
This Article On Lending Money On A Personal Level Was Written By Billy Stavridis
Borrowing and or lending money from financial institutions comes with protocol and guidelines that have overtime evolved into a standard process we all have to follow should we chose that route. There’s also other types of lending that exists, for example, borrowing or lending monies on a personal level to friends and family which in turn makes you the bank. Guidelines for such lending is unique in almost every circumstance therefore developing guidelines are usually abstract thus, agreed conditions based on each individual case is more common in the personal lending world.
Lending Money: Caution Against Personal Loans
There are many reasons why not to lend to friends / family. The most common has to do with your own personal finances. Most people don’t really have the liquidity or can afford to take a loss, any time you loan money to a friend for family member you must always assume any money loaned has a strong possibility that money will be lost. If have to dip into a retirement account, emergency fund or other necessary fund to make the loan, it’s not a loan you should be making. Family strife, tax problems and complacency are some of the other things to worry about. If your family or friends come to you for loans simply because you lend at a low (or no) rate, you are simply hurting your own finances to subsidize theirs. A loan from a bank or credit union (recommended) will not only help them build a good credit but will also help raise their credit score in the process.
Lending Money: Gift Versus Personal Loans
Reasons against personal lending all too often evaporate in the face of emotions when one of your loved ones need the money, In which case you have to make a clear distinctions between a gift and a loan. A gift has no expectation of ever being repaid, a loan on the other hand is understood that it should be paid back in full, including any interest if so agreed upon and the terms and conditions should all be in writing to avoid any misunderstanding. In most cases giving money as a gift usually is a personal choice and is based on emotion but making a loan has to be done in a logical manner and thought out.
Lending Money: Before Saying Yes
Ask yourself a few simple questions before you open up your deposit box: Would you loan this person your car? Do you trust their opinion ? Would you consider taking their advice ?….The answer to these questions are usually good indicators as to what your chances of being paid back in full are. The next question should be what is the money for? You have the right to know no matter how large or small a loan. In many cases most people say they need money to pay off debts so to be sure the money is used properly, paying off someone’s debt directly as opposed to a loan can be more comforting. The one thing you don’t want to do when it comes to personal lending is to keep pouring money into a sinking boat as this can lead to all types of issues.
All this being said it doesn’t mean you shouldn’t help, by simply asking the right questions and learning more about the needs of the person and the type of loan perhaps you can find alternative methods of helping such as COLLATERAL LENDING, by holding something of value (from the borrower) as collateral i.e title to a vehicle, this increases your chances of being paid back or at the very least if in the unfortunate circumstances of default you have some recourse or means to recover some or most of your money back so it’s not a total loss.
Lending Money: Coming To Terms
Verbal contracts rarely end well, the chance of problems arising even with small and short term loans always exist. For example, if the payment comes a few months late and now you have to charge your groceries on your credit card then your actually losing money on the loan and its money you’ll recover because usually there are no written terms. However, writing up contracts usually deters or discouraged most people from coming to you for a loan. Both parties should work together on the terms before signing. The following are a few guidelines to follow when writing up a contract:
CONDITIONS: clear conditions need to be written in the event of unforeseen circumstance.
MAKING IT OFFICIAL: it doesn’t hurt to run the contract thru a lawyer and then have it notarized.
Personal loans can be a nightmare if either party fails to approach it with caution. If you still don’t feel like going thru all the precautionary steps and still wish to make the loan, there is an alternative. Third party companies exist and act as intermediaries for personal lending for a fee. They can set up the contracts, structure automatic payment schedules and monitor the process throughout. If all goes well, this is a much better alternative than going thru with a poorly thought-out contract. You’ll be able to close out the loan and have the peace of mind and comfort of knowing that you have helped out a loved one in need and all without harming yourself or anyone else in the process.
About The Author: Billy Stavridis
Billy Stavridis is a senior writer for Gustan Cho Associates Mortgage And Real Estate Information Center and a seasoned real estate investor and an expert in real estate investments and mortgage lending. Billy Stavridis is also a mortgage loan officer who specializes in FHA Loans, VA Loans, USDA Loans, and Conventional Loans with no lender overlays as well as commercial mortgage lending. Gustan Cho Associates is looking forward to more articles by Billy Stavridis in the coming days and weeks. Like to thank Billy Stavridis on this great article on Lending Money. Stay tuned for more informative mortgage and real estate blogs by Billy Stavridis.