At one point or another, most people will find themselves in situations where they asked for a loan. The person making this request may be a relative, close friend, or even a co-worker. Loaning money comes with its own risks and stigmas; what if the borrower takes too long to return the money? What if they can't afford to pay back the loan? Worst of all, what if they simply choose not to?
Most people feel inclined to provide aid to those who are closest to them. However, there are still certain factors which should be taken into account prior to handing out monetary loans. Keep reading if you're interested in learning more.
Consider the Qualities of the Person
Not every person who asks for a loan should be told yes. Hence why the qualities and characteristics of the prospective borrower should be taken into account before any funds are exchanged. Integrity, personal responsibility, and even current financial standing each play a role in how likely the individual is to, not only, return the borrowed funds, but also do so in a decent amount of time.
Another point to take into account is whether or not the asker has previously borrowed money from other people. If so, has he or she paid it back in a timely manner? Believe it or not, borrowing history tends to be quite indicative of an individual's forthcoming habits, as they pertain to money.
Look into Creating a Legal Contract
While amounts of borrowed funds can vary,
advises lenders to draw up legally binding contracts; this especially comes in handy when hefty sums of money are being loaned. This can be done by having the borrower sign the contract and also ensuring that the document is enforceable via the
Uniform Commercial Code (UCC)
Instituting a clear payment plan and eventually getting the contract notarized are also critical steps towards legalizing the form. Although going through the process of creating a legal contract may seem like a bit much to some individuals, it can truly come in handy later on down the line. Moreover, if a prospective borrower is unwilling to sign a legally binding contract, they may not be the best person to loan money to.
Trust Your Instincts
At the end of the day, each person is tasked with the decision of whether or not they want to loan money to a friend or relative who asks. Considering their qualities and characters can be incredibly beneficial, as can creating a legal contract; however, at the end of the day, your instincts should always be the determining factor.
No matter how good or trustworthy someone appears to be on paper, if your gut tells you to turn down their request to borrow money, do so. You are under no obligation to hand out loans; furthermore, you must first help yourself before you can truly help others.
A Final Word
Hopefully, the preceding advice will prove helpful to anyone who is undecided about whether or not they should loan money to someone they know.
Authored by Gabrielle Seunagal