Neither a Borrower Nor a Lender Be

Ever have a friend or family member ask you for a loan? It can be awkward and may lead to a strained relationship. So before you decide to be a banker, consider these steps to help avoid a potentially ugly situation.

Don't Commit Right Away. When asked for a personal loan, don't say yes right away, especially if the sum of money is large. Instead, tell them you would like to help and explain that you need a few days to review your financial situation before you make a decision. Perhaps another solution will come to them in the meantime.

Just Say No. If possible, try to avoid lending the money. Try to provide an explanation that will not hurt your relationship. You may want to consider offering to help in a non-financial way or giving a smaller amount as a gift, with no expectations of repayment. This allows you to be generous on your own terms and removes the potentially heated issue of non-repayment.

Be Specific. If you do decide to extend a loan, set clear expectations for repayment. And don't beat around the bush... be very specific about the term of the loan, interest rate, payment plan, and even the penalty that will be incurred should a payment be missed.

Get It In Writing. Always put the terms in writing. A written agreement reinforces that you are serious about the repayment terms discussed, and it prevents any potential misunderstandings.