Thursday, June 28, 2007
Lending to your Friends and Relatives
There are few things harder in life than having to look your best friend or relative in the eye as they ask you to lend them some money. Countless relationships have been ruined by the borrowing of money. You risk your friendship by saying no when they ask you for money, but you will also be taking a big risk by saying yes. And in most cases, people who lend money to a friend are liable to loose them both. But its really hard to say no to your brother or sister when they approach you for a loan that they may desperately need. The first consideration you have to take is how much they are going to borrow and can you afford the amount they are asking. As a general rule, if you cant afford to give the money away, you cant afford to lend it. Take into account whats the money for? If they are asking you to lend them money to buy a new car, a plasma TV and things that they can live without, or as we Pinoys call it "luho" then flat out decline. But if it's for hospitalization of a family member or tuition fee for a son or daughter to finish their schooling, then consider lending to them if you can afford it. The next step to take if you decide to lend them money is to get it in writing for your protection and schedule a repayment scheme to make payments easier. Another issue when lending to friends or family is the interest. Should you charge interest? It depends but if they are already hard-up to begin with, charging them interest will only add to their burden.
But what if you really want to help them out but you don't have the funds to do so. One way is helping them get a loan from the bank by being their guarantor. Being their guarantor will give their loan application a greater chance of being approved. But be careful, being a guarantor means that if they default on their payments and could no longer pay the bank back even after all their properties are sold, the bank will go after you and your properties until payment is satisfied. This is a difficult decision to make, but the most important thing to consider before any decision is made is your own family. How would they feel about this? Discuss this with your spouses before making any rash decision, it may cause a rift in your relationship and no matter how good a friend or how close a relative, you should consider the welfare of your own family above all others.