When it comes to lending money to family members, most experts will tell you don’t do it! Financial planners will warn you that interfamily loans can lead to trouble with the IRS, financial problems, and disastrous relationships with relatives. According to Bissonnette, “You're mixing business with relationships -- which is rarely good -- and, according to a Money magazine poll, "43% of readers who lent to family or friends weren't paid back in full; 27% hadn't received a dime (2009).”
If for some reason you really want to give a relative money, draw up a contract. Make sure to include everything you want out of the family member you are lending the money to and whether or not you are going to charge them interest on the loan. Be very specific and make sure your relative knows exactly what they are getting themselves into. If there was ever a problem, you could bring them to court and would have written proof that they agreed to uphold their end of the bargain.
Here are some tips for lending to family and friends:
- . Don’t co-sign for a loan
- If you don’t have money to lose, then don’t loan them money!
- Think about giving them a small financial gift
- Consider giving something other than money to help
- Offer to help them with budgeting