Many people believe that it is unwise to give one’s hard-earned money to a loved one in trouble. This is because giving money and not getting it back puts the relationship at stake. If your dear one is seriously in a trouble and you have some money to lend, you may feel like helping.

It is fine to lend but you should do so as if you are giving to a stranger. It is feasible to do so if you and your money both remain safe. To ensure this, here are five things for you to do.

Give Only If You Can Afford

It is fine to practice financial mercy but not beyond what you cannot afford even if the borrower is your friend or a close relative. As the risk of not getting the money back is always high in such a case, you should take a sound decision. Are you happy to forgive the money for sustaining the relation? Even if you wish to forgive, lend only if doing so does not hurt you financially.

Give Only Cash

Do not be crazy enough to help! Help wisely! If your pal or sibling requests to take a loan by securing one of your assets or applying a credit card for use but in your name, simply reject it. Do not even co-sign for a loan. Otherwise, you push yourself towards a state wherein someone else is enjoying in your name while reducing your ability to secure credit.

So, if you feel like helping a loved one, deal only in cash. After all, giving cash to someone does not directly impact your credit score.

Stay Informed

Will a creditor give funds to anyone without knowing where it is going to go? No, right? Similarly, even you should lend without this knowledge. Asking for such details may make you concerned about hurting your dear one in trouble. However, it is practical to get this information.   

If the borrower feels upset, take it as a sign of a bad deal and simply do not go ahead with it. If you get all the details, then follow up to decide whether to lend or not. For instance, if your sibling or friend asks for money for further education, check out what is to be studied, where the person will go for that study, for how long it will be and so on.

Talk about Defaulting

Even though the borrower is your friend or sibling, it is feasible to discuss the lending terms and conditions. While discussing the terms may seem embarrassing, enough, consider it as essential to protect yourself and money.

So, talk frankly about what to do if you get a late payment or do not get money at all. Here, discuss the action that you are willing to take, such as late fees, grace time or legal action. Doing so keeps both of you informed about what will happen if the deal breaks.

Take Interest

This is another awkward action to take, as charging interest to a loved one may seem needless. However, it is the most reasonable way to defend your money. Instead of a higher rate, you will charge a fair one to motivate the borrower to repay on time. Another benefit is protection from a gift tax on the lent amount.

Get a Written Agreement

There is no telling when anyone will go against the promised or spoken words. So, it is wise to get the whole deal (terms and conditions) in writing and duly signed by both parties.

Conclusion

With these dos, you can safeguard your deal of lending without putting your relationship in danger.

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