Breaking the Stigma: How to Lend Personal Loans without Awkwardness?

A guide to lend personal loans
A guide to lend personal loans

Did you know that more than 3 in 5 U.S. adults have lent personal loans with the expectation of being paid back? Among them, 59% have reported a negative experience, losing money, harming personal relationships, or even getting into physical clashes.

You may feel like it’s not a good idea to lend to friends or family, but you might be tempted to help out someone in financial need. That being said, here’s how to lend money without damaging your finances or personal relationships.

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4 Rules of Thumb for Lending Personal Loans

Making a personal loan could put you in a delicate situation. What if the borrower failed to pay you back? What if you find yourself in a financial bind? And how a failure to repay could hurt feelings on both sides? To avoid any of that, you need to follow these simple rules.

Rule #1: Figure Out if You Can Afford to Lend

The first rule is obvious, but it’s worth mentioning. Lending a large amount of money to help someone out can be a bad idea if it squeezes your own finances. When deciding how much to lend, think of the money you can afford to lose without hurting your finances. 

This doesn’t mean you should assume that you won’t be repaid. Instead, this approach will help you set some realistic boundaries to lend personal loans, so that you don’t end up taking a loan yourself later.

Rule #2: Document Everything When Necessary

When you are lending a significant amount of money, it’s smart to have a written agreement in place. It doesn’t need to be something a lawyer should document. Just a simple promissory note would be enough.

The document may include the amount of money you lent, the date you lent it, and the terms and timeline of the repayment. This will help you clarify the responsibilities of both parties – without causing any friction.

Rule #3: Avoid Getting Led by Emotions

Your friend or family is in genuine need, and you want to lend the money. However, don’t get led by emotions. People who lend based on emotions tend to lose their money or end up damaging their relationship.

This is because borrowers do not actually treat such loans as serious debt outstanding. They often take these loans casually because there is no interest liability and legal complication. So, consider the borrower’s ability to repay the loan.

Rule #4: Communicate Clearly

If it’s taking longer than expected to recover your loan, the lender may be in financial trouble. They might be making an effort to repay you, so it’s okay to afford them a little flexibility and extra time. However, keep in mind that the more time you let go by, the more the lender is going to forget about the loan. Thus, be empathetic, but don’t be a doormat.

The Bottom Line

While the decision to lend money to family or friends is entirely yours, following these dos and don’ts will protect your capital and your relationship. It’s a fine line between helping out a friend and putting your own finances at risk. To streamline the process of lending or borrowing family-friend loans, consider using the Janji-Ku app.