Lending to friends? Make the process safer and safeguard the relationship

By: on 2016-10-27
Ask Sanders Patricia

Almost all of us have one such friend who needs to borrow money all of a sudden. This friend is always helpless and considers you as his/her last resort in hope to get some money. But, after getting the money, this friend hardly responds your call. Many of us have such an experience. And for this reason, almost all of us consider money as a sensitive topic and don't want to involve it in any relationship.

According to Carey McBeth, an etiquette specialist based in Vancouver, "Money is something very personal. Some people work really hard to make ends meet and it becomes a sensitive topic. People aren't comfortable or passionate about it, which gets hard when you're trying to ask for it back."

However, lending money is a generous act. If you can manage the whole process tactfully, then you may safeguard the relationship as well. Here, both the lender and the borrower need to maintain the whole process respectfully.

Lending money to friends - Is there any law?

Have you ever thought whether or not lending money to friends is legal in your state? The answer is yes, lending money is legal in every state but every state has laws that control money lending.

When you’re lending money to your friends or family members, then the regulation doesn’t apply. To make the personal lending process safer, you must seek a local attorney’s help to get some potential advice. You should check your local statutes before lending money as it varies or changes over time. So, knowing the laws is very important before you lend money to a friend or family members.

Some important laws are as follows:

  1. If you lend money and charge some interest or take collateral, then you must create a security agreement.
  2. Every state has its terms regarding the interest rates a lender may charge on a personal loan. (Check your local statutes before giving money)
  3. Keep the agreement in writing, which includes a repayment schedule and terms of the agreement.
  4. If you get interest from the loan, then it will be considered as an income and it should be claimed on your taxes.
  5. You shouldn’t charge excessive interest.
  6. You shouldn’t cross the maximum loan amounts (around 18% or less per year).
  7. You need to follow the proper collection methods.
  8. You have to make an agreement regarding the money you want to lend.

Tips to lend money to a friend following proper etiquette

Let's give it a chance and dig out the right etiquette to lend money to a friend without spoiling the relationship.

1. Create an agreement

You should create a contract before lending money to your friend. Make sure you mention the total amount, repayment schedule and interest rate in the agreement. Both the parties should maintain the agreement properly to avoid any confusion.

2. You can give the money as a gift

If the amount is small, then you can give the money as a gift to your friend. One time gift is appreciable and considered as a kind gesture. But, you need to think before gifting the money to avoid problems as a result of it.

3. Deliver friendly indication

Be polite while reminding the person that he/she owes you money. A friendly reminder is ok, as long as you're not nagging your friend rudely. You can send a reminder through email, text or phone calls.

4. Don't feel guilty to say "NO"

If you don't have a sound financial backup to lend money to your friend, then tell the truth to your friend directly. Carey McBeth said, "If you say your bills come first, nobody should be calling you cheap."

5. Manage the issue peacefully

If you're not getting back the money you gave, then try to ask the reason peacefully. You can involve a neutral third party agency to work on your behalf. Thus, you don't need to act like a collector. The agency will set up an ACH direct debit from the account of the lender and will deposit it in your account.

What if your friend doesn't pay you back?

In such a case, you need to manage the situation more carefully. The below tips can help you. Have a look:

1. Try not to lend additional money

If your friend is already too late to pay you back and asking for more money, then don't rely on his/her fake promise. Simply deny giving additional money if you don't want to lose the friendship.

2. Learn the lesson

If your friend doesn't pay you back even after getting several reminders, then take it as a lesson learned from the situation. Try not to give money to the same person, whatever the reason is. In case, if the amount is too large, then you can seek legal action to get the money back. Remember, you need to fund court cost and attorney fees for the case.

Final words

According to the etiquette experts, communication is important to get the money back from the borrower, who is your friend. According to the experts, "If you are not comfortable asking for your money back, you probably won't get it back." So, face your friend and ask the reason for missing the repayment date. Always lend the money you can afford to lose; otherwise, you may fall into financial trouble.

However, it may happen that you're not able to help your friend, who is facing financial trouble, by lending money. Even then, you can boost his/her confidence by uttering the right words. Check out what you should not say to your friend who's experiencing a financial trouble.

Last Updated on: Thu, 27 Oct 2016

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