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Smart Tips for Lending Family Members Money

We live in tough economic times. Chances are you'll have family members and relatives asking if you could loan them money.lending family members money

As winter strikes loved ones may find it hard to stay warm and within their budgets. While you might stay cozy under the covers or snatch up the last electric blanket on sale, you probably know someone who didn’t plan ahead.

They’ll crank the heat up to 80 degrees and live in their own personal sauna until the heating bill comes in and they’re shocked back into a cold reality and asking for help.

There are those who make it a personal rule never to loan money to family members. However, there are times when it may just be the right thing to do.

If you're deciding if you should loan money to family, here are a few things you need to know about it and how personal loans should be structured.


Should You Loan Money to Family

1. Keep your own finances safe

Before you lending family members money, examine your financial status. This way you'll know if you really are in a position to lend money and if you are, how much without endangering your own financial situation.

It doesn't make sense to lend money you can't afford to, especially when it means you're going to fall behind on your own obligations. Because then you’ll just be putting yourself in the situation of having to borrow. Basically you’ll turn into them, the people asking.

2. Know the purpose of the loan

It's not unreasonable to ask your loved one how or where they're going to use the money they're borrowing from you. It's important that you know if the money you're lending is going to be used to tide them over during unemployment or if they just want to buy themselves a new TV.

3. Offer to help with money management

 Is your loved one always having money troubles? If so, that's a sign that they're lacking strong money management skills. And if they’re asking you for money, large amounts at that, they probably need it.

They may need to learn such skills instead of borrow more money from you. You can offer to help them with budgeting. You can also suggest they attend free money management classes offered at community centers or at the local library.

This will help solve the problem and prevent them from viewing you as personal bank.

4. Offer another form of support

Money isn't always the solution to problems. For instance, if your loved one can't look for a job because they can't afford to hire a babysitter while they're job hunting, you can offer to look after their kids for a day.

Be creative.

5. Think about the family dynamics

Be careful not to alienate other members of the family by showing favoritism. Your reasons may be valid when it comes to treating children differently, but when it comes to money matters, it's important that you treat your children equally.

6. Don't meddle

 Is it going to upset you if your relative borrows money from you only to spend it on an expensive spa or go on a vacation? In this case, you might as well not lend them money.


A Personal Loan – When You Loan Money to Family

1. Make sure to put the loan in writing

Create a promissory note, which includes how much the loan is and the terms of repayment. You'll find many simple personal loan templates on the Internet. If you make any changes to the agreement, those should be in writing as well.

This sets clear expectations and should avoid future issues since everything is laid out.

2. Calculate the interest

In some cases, you may be required by the IRS to charge interest on the personal loan. If you use your credit card or you take out money from your savings account, any fees or losses incurred should be included in the interest and repayment terms.

3. Talk to financial experts

Call your accountant or tax attorney for advice on how to deal with your personal loan. Consider strategic estate planning, as this may be the best way you can help family on terms that are most favorable.

4. Whenever your loved one makes a payment toward the loan, provide a receipt — one for your loved one and one for yourself for record keeping.

When you have receipts, both of you can stay on track and minimize misunderstandings down the road. But make sure you keep yours in a safe place, it would be more convenient for them to lose their copy than you.

5. Don't be a co-signer

 You don't ever want to co-sign for a loan, unless there's a really, really extraordinary reason for doing so. If your loved one doesn't pay, you'll be liable for the loan. And if your loved one is always late in making payments, this will reflect on your credit rating.

6. Exercise privacy

Only those who are directly involved should know about the details of the personal loan. This typically means you, the family member or relative who's borrowing money from you, and any financial expert you bring in to advise you. No one else needs to know.

7. Anticipate losses

 Plan for what you'll do in case your loved one doesn't pay back his loan. It may be that the best thing to do is write off the loss — not only for your peace of mind but to keep the peace within the family as well.


Think and proceed carefully before lending family members money. You'll need to not just protect your finances but your relationships as well.

Take precautions or if lending them money is not possible, try to come up with alternative ways to help them.


Have you lent money to a relative or friend? How did you handle it?



About Lea

Lea is a certified life coach, foodie and lifehack expert. Don’t end up like the millions of people who gave up on their dreams, get unstuck and to the next level. Take the eye-opening Live Your Dreams course now to get moving!

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