There are times when personal networks end up being the last resort for borrowing money. This makes loans from friends and family a good idea. These loans have been ongoing since money has existed as a currency. Instead of going to a bank, people can get easy approvals at low (or no) interest rates. This requires an open conversation and proper planning. Also, you will have to navigate the potential pitfalls when lending money.

Lending to Friends and Family? Avoid these Pitfalls

Family-friend loans have many benefits, but there are some common mistakes you need to avoid making when lending family-friend loans. Let’s walk through this post to help you avoid potential pitfalls that might end up affecting your personal relationship.

1 Not Documenting the Loan

A loan agreement is a way for the lender and borrower to be in a new relationship that has been documented. Such an agreement or contract gives both parties dignity and rights in the transaction. It will also help to have proof for tax and interest purposes.

Therefore, create a solid legal proof that involves both parties. You can use online platforms like Janji-Ku to clearly document your loan agreement with proper terms and conditions, including your respective email addresses, phone number, and other details.

2. Not Negotiating the Loan

Once asked for a loan, the lender and borrower should come to a mutual agreement on interest and payback terms. When must the repayments be made, how often, and how much duration should be decided?

Don’t hesitate to speak up if a certain interest rate does not match the scenario. Once again, have clarity in conversation about everything that can damage your relationship.

3. Getting Led by Emotions

It’s a good idea to lend money to friends or family if they are in genuine need. However, the lender must also consider the borrower’s ability to repay. Are they working? How much do they earn? What are their other financial commitments?

Sometimes, people lend based on emotions. This could actually treat the loan as a serious debt outstanding. The lender may tend to take the loan casually and is unlikely to repay the money.

4. Not Keeping in Touch

If the borrower is not able to make repayments on time, it’s important to keep the communication going to avoid any grudges. Such clarity shows that you care for the other person. This will help you keep your lender-borrower relationship intact.

Use third-party apps like Janji-Ku to schedule late payments. This app keeps track of possible documentation and payment transaction IDs that display the history of payments made toward the loan. Also, you can create and send automated payment reminders.

5. Not Letting it go

Knowing where the money is going may help you understand the borrower’s approach to the loan. However, you should also be prepared to step back and let it go. This is especially true if you think the money is not being spent the way you would handle it.

Final Thoughts

We understand that family-friend loans should not end badly, so we encourage good communication to help you avoid negative circumstances, such as damaged relationships, late payments, and loss of money. Use the Janji-Ku app to streamline the process of lending money to friends and family.

Download the app now.