Should You Loan Money to a Friend?

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Should You Loan Money to a Friend? Powered By Docstoc
					                                                                                                                     15/09/2011 17:42
                                                                                                                            by viking305

                Should You Loan Money to a Friend?

                                                                                     Tips to successfully loan money

                   f you have money and friends, the situation is
                   bound to come up sooner or later – your buddy
                   wants to get a loan from you. Should you loan            Reason the friend wants to get a loan: Why does
                money to a friend? Shakespeare didn’t think so. In          Bob want to get a loan from you? This is a key aspect
                Hamlet, ol’ Will has this line: “Neither a borrower         for some friend-lenders. Some people don’t want to
                nor a lender be; For loan oft loses both itself and         loan money unless it’s for an emergency situation,
                friend.” An old Scottish proverb echoes this sen-           while others don’t really care what the loan money is
                timent: “Lend your money and lose your friend.”             to be used for. Personally, if one of my close friends
                Maybe these folks were right about the wisdom of            needs to get a loan from me, I don’t care how the
                not loaning money to friends, but I haven’t expe-           money is to be used.
                rienced any problems, personally, with making
                personal loans to pals.                                     A low-interest loan or a no-interest loan? You’ll
                                                                            have to decide whether you’ll be extending a low-
                I’ve given short term loans to friends many times,          interest loan or a no-interest loan to your pal. If the
                and I’ve never been disappointed. My pals have              loan is for a small amount of money, and it’s repaid
                always paid me back when they said they would.              quickly, you might want to make it a no-interest loan.
                Maybe I’m the exception. I’ve read lots of sad              On the other hand, if the loan is for a larger amount
                tales of how personal loans have destroyed close            and will be repaid over an extended period of time,
                friendships. Heck, you see it on court TV shows all         you might want to charge interest. You could still
                the time. Two lifelong best buds will be ready to kill      help the friend out by making it a low-interest loan,
                each other over a personal loan. So should you or           with better rates than they’d get at a bank.
                shouldn’t you loan money to a friend?
                                                                            Make sure the terms are fully understood by both
                I think much of the answer depends on your friend           parties. The terms should include the amount of
                or friends. First of all, don’t even consider loaning       the loan, any interest involved, and when it will be
                money if you don’t know the person well. You should         repaid. For larger amounts of money, you’ll probably
                have been in a friendly relationship long enough to         want to get all the specifics of the loan in writing.
                have judged the other person’s character accurately.        Make sure it’s dated, signed by both parties, and
                When I loan money to a friend, I’ve decided that the        witnessed by a third party. Make copies and give
                friend is trustworthy and honest. Through time,             the borrower one. You keep the original in a safe
                that pal and I have established a friendship based          place.
                on trust and mutual respect.

                If you have a not-so-close pal who’s in dire straits
                and wants to get a loan, just give her the money, if        Set up a payment plan for the loan. If your pal
                you can afford it. If she’s a real friend and a person      wants to get a personal loan just until payday, or
                of good character, she’ll repay you if and when she         when they get their income tax refund, you won’t
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                gets on her feet, even though she doesn’t have to.          need to set up monthly payments for such a short


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                                                                                                                      15/09/2011 17:42

                Should You Loan Money to a Friend?

                term loan. For a long term loan, set up a realistic                         How to borrow money
                schedule for repayment – something the friend can
                afford and that you can live with.                           For how to borrow money from a friend, follow the
                                                                             above guidelines. Go to your friend and explain
                What if the friend can’t repay the loan? Always              why you need to borrow money. Telling her why
                discuss this possibility. Stuff happens, and it happens      you need to get a personal loan might be important
                on a regular basis! Let’s say your pal gets $500 as a        to her. Tell her exactly when and how you’ll repay
                Christmas gift every year from her grandmother.              her. Suggest to her that both of you sign a written
                The friend is short of cash in November, so she wants        contract. This will make her feel like you’re serious
                to borrow $500 from you, and she promises to pay             about repaying the loan. Don’t borrow any more
                it back at Christmas when she gets the money from            than you have to or more than you can repay. For
                Grandma. What if Granny dies or loses all her mo-            short term loans, you might not need a repayment
                ney in the stock market before Christmas ever rolls          schedule, but for long term loans, you probably will.
                around? In that case, your pal won’t get her money,          Most of all, don’t get a loan from a friend unless
                so you won’t get yours, either. Now what? The short          you have to.
                term loan has likely just become a long term loan.
                You can formulate a weekly or monthly repayment
                plan, or you can figure out some other way for your
                friend to repay you. Unless you really need the cash,
                you could use the barter system. Maybe you have
                some jobs around the house that need doing, like
                repainting your garage or staining your deck. The
                borrower could complete such jobs in lieu of re-
                paying you with money.

                     Should you get a loan from a friend?

                I’ve been on this side of the equation, also. I’ve had
                to get personal loans from friends a couple of times.
                I hated to ask, but there have been a few times when
                I’ve had to get a loan. These were short term loans,
                and none of them were very large. Since I repaid
                the loans very quickly, I feel sure I can get a loan
                again from the same pals should the need arise.
                Except for one close friend, the loans were made
                to me by friends I’ve made loans to. We’ve helped
                each other out several times with short term loans.
                So if you have no other choice, you might be forced

                to get a loan from a pal. How should you go about
                this? Read on for how to borrow money!
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Description: Pros and cons about loaning and borrowing money among friends, with some tips to save your friendship.