You could find yourself in a position where you’re considering giving someone a loan. That might be a friend or family member.
If you are, you mightn’t know what to do. You’ll want to help them, but you mightn’t be sure if you’re in a position to.
Even if you are in a position to, you mightn’t be sure you should. Alternatively, you could be starting a career in lending and investing.
That’ll make it vital to know what to consider before giving someone a loan. You’ll need to consider a few particular things in mind before deciding.
What To Know Before Giving Someone A Loan
Know When To Say No
When you’re considering giving someone a loan, it’s important to remember that you can always say ‘no.’ You’re well within your rights to do so.
It’s relatively expected when you’re a professional lender. It could be more difficult with friends or family members, however.
Money can be an uncomfortable topic to talk about. It’s even more stressful if someone owes you money. If you’re uncomfortable giving them a loan, then don’t.
Have A Plan In Place
When you’re giving someone a loan, you’ll need to keep worst-case scenarios in mind. What if they don’t pay back the loan? How likely is it that they’ll pay this back?
In professional terms, you’ll need to develop a credit risk strategy. Knowing the risks involved in the loan and figuring out how to minimize them will be vital.
Once you do, you’ll increase your chances of getting back the money you loaned them. If interest is involved, then you should get this too.
You’ll only see this if you have a plan in place. The loan recipient should also agree to this.
Talking about money can often be difficult. Professionals will find this increasingly easy over time. When it comes to friends or family members, however, it can still be awkward.
You’ll still need to discuss the terms of the loan before agreeing to it, however. Not doing so could be a bad thing for you and them.
You’ll need to agree on these before you hand over any money. Certain things will be more important than others, such as when repayments will be made, how much these will be, and much more.
Be clear with all of this, as you’ll need to avoid any confusion. Make sure to get things in writing.
Giving Someone A Loan Safely: Wrapping Up
A lot will go through your mind when you’re considering giving someone a loan. Professional lenders will find this increasingly easier over time. Practice makes perfect, after all.
If you’re not a professional, however, the decision could be relatively difficult. You’ll want to help your friend or family member, but you’ll also want to make sure your money is safe.
Keeping each of the above in mind will help you do that. Being as informed as possible will be vital, so make sure to discuss things in-depth with whoever you’re considering giving a loan to.