How to Lend Money to Family

Introduction

Lending money to family members can be a tricky business if you don't follow certain guidelines. Bad family loans have been known to cause major discord and even break some families apart. However, it can be hard to turn away a family member in need, so if you do go through with the loan, perform the following to make it easy on all parties.

Instructions

Difficulty: Moderate

Steps

1

Step One

Talk about your expectations. Make it clear to the borrower that the money that you give them is a loan and that you expect to be paid back.

2

Step Two

Figure out a payment plan. Sit down and work out a suitable payment plan that fits both of your budgets. Small payments over an extended period will be easier to make than one lump sum payment.

3

Step Three

Draw up a contract. Find a blank contract that you can use at a stationary store or download one off of the Internet. Put in all applicable information including the loan amount, expected payment dates and any other details of the loan. The borrower and lender should both sign it and keep a copy.

4

Step Four

Speak to your accountant. Personal loans are subject to being taxed by the IRS. Let your accountant know about the loan and get advice on how to handle any applicable taxes.

5

Step Five

Lend only what you can afford. If you are going to put yourself in financial danger, then be honest with the family member and let them know that you can not afford to give the loan.

Tips & Warnings

• Never loan money without knowing the purpose for the loan. They don't need to give you a written list of what the money is for, but it's good to have a general idea of where the money is going.
• Don't become resentful about the spending habits of the family member. You should not become angry if they take a vacation or buy personal items as long as they are following the agreed payment schedule.