Leveraging Family Wealth—Consider Both Sides
Leveraging Family Wealth—Consider Both Sides
Getting a loan from a relative or close friend is not always a picnic. If you take out a loan from a financial institution like a bank and end up having trouble paying it back, the bank can simply seize your assets as collateral. However, what should one do in the event that a family member defaults on a loan? So, are you planning to steal their car? Absolutely not. Because of this, it is not easy to lend money to relatives.
You should be ready to permanently part ways with any money you lend to family members. You should know that the chances of getting your money back are usually rather low. Lending money to loved ones is not always easy, but here are some ways to make the process go more smoothly.
1: Never put out money that you are going to need or desire back. You can not afford to go out and buy presents for loved ones if you are strapped for cash. This may sound harsh, but you must put yourself first; after all, who will bail you out if you run out of money? You should be ready to never get your money back, as I mentioned earlier. Therefore, you should not give away money if you do not have any extra.
2. Determine the level of danger. Of course, if you borrow money from a relative, they will say they will repay you. However, in order to determine their ability to repay you, you must first evaluate their current circumstances. Of course, every situation is unique, but why would you trust a family member with your money if they have a track record of defaulting on loans or are careless with it? Verify their ability to repay you, or at least educate yourself on the matter.
Three, you should never put your co-signer's name on a loan. A co-signer may be necessary for a family member to get a loan in some cases. If they can not find a co-signer, the bank might not be willing to issue them a solo loan, so they will come to you for help. It is recommended that you refrain from co-signing for loans, nevertheless. If the other party stops making payments, you can end up having to pay back the money—money that you do not even have.
4: Donate money graciously as presents. It goes against everything I have said about being cautious when borrowing money from family, so far. As we become older, though, that becomes less clear. Gifts of money are common while we are teenagers, but we have no use for it. Nobody will help us out financially when the time comes that we really need it.
On special occasions like birthdays and holidays, consider giving your adult children and other relatives monetary gifts. Not only may it be of use to them, but it also provides you a fighting chance if you ever have to reject their loan request. In the end, it is beneficial for you and your loved ones.
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