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Questions to Ask When Giving a Personal Loan

Posted March 31st, 2010
by Staff

Money can be a real source of division for folks. Money problems are one of the most common causes of divorce among couples, and even Shakespeare quipped that making a personal loan to a friend is a great way to lose both your money and your friend. Still, at some point, chances are pretty good that a friend or family member is going to ask you for money. When they do, you need to think long and hard before you make that personal loan.

Part of making that process smooth and protecting your relationship is asking questions. If you ask the questions below before you give a personal loan, you’ll find it makes things easier on down the road:

  • Do you really have the money? First, you need to ask yourself if you can really afford to make the personal loan or not. If it’s going to put you in a place of financial hardship, you need to be able to say “no.”
  • What’s the money for? If your no-good hippie nephew wants $1,000 to start an organic mushroom farm, you might think long and hard before making the loan. On the other hand, if your son-in-law needs $200 for a plane ticket to fly to a job interview that you think he can land, it might be worth it.
  • Will the borrower likely repay you? Take a good look at the person’s past actions. If they regularly borrow money and don’t pay it back, chances are good you won’t see your money again, either.
  • Will this cause a rift in your family? A child that borrows money from her parents that reduces the amount of the other siblings’ inheritance might cause a problem. Make sure that it’s either discreet or that it’s not likely to cause trouble.
  • Do they have other options? No, you don’t want to send them to the payday loan store down the street where they’ll pay nearly $400 in interest. But, maybe they can borrow the money from their 401K, or maybe they can get an advance on their paycheck.
  • What will happen if they never pay it back? That’s always a possibility. You need to decide whether or not it will cause your relationship to fall apart, and you need to be up front with the person about the relationship consequences, as well.

Photo via Photomish Dan



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