Is it Still a Bad Idea to Loan Money to Friends and Family? | Global News Avenue

Yes, lending money to friends and family is still a bad idea.

That being said, there may be some exceptions. Maybe this person has helped you in the past and you want to repay the favor. Alternatively, you are fairly certain that the loan will be repaid.

Whatever the reason for the loan, it’s important to set boundaries to help maintain your relationship with the person and ultimately get your money back. Before handing over your money, consider the following risks of borrowing money from friends and family.

You may not get your money back

It’s noble to want to help friends and family, especially if they are in financial trouble. The truth is, you may never see the money again. Even if you enter into a formal agreement, it may be difficult to recover your losses.

Your relationship cannot withstand the pressure.

Ideally, you should have an open and honest conversation with your loved one before lending him or her money. You can express your hesitations or fears about getting your money back, or hear what your loved ones think about the loan repayment plan.

If your repayment terms or expectations are unclear, it can put a strain on the relationship. Alternatively, further dissatisfaction may result if the loan is not repaid on time (or at all).

You may be taxed

If you decide to charge interest, any amount you earn from borrowing the money counts as ordinary income in the eyes of the IRS. Not setting aside money from the interest you earn can lead to unpleasant surprises come tax season.

You should keep helping others

In your mind, you’re providing a one-time favor to a close friend who needs some extra cash during the holidays. you don’t want them to struggle Able to lend them money.

Unfortunately, other friends or family may want to take advantage of your generous nature and expect you to help them. Or, the same person may ask you for additional loans. To prevent friends and loved ones from constantly trusting you to open your wallet for them, think carefully about what boundaries you will set before borrowing money.

bottom line

Even though you may want to help, you must think carefully before asking friends and family to lend you money. You may never see the money again, be asked repeatedly to borrow it, and end up feeling resentful towards those close to you. If you decide to take out a loan, make sure you are clear about your expectations and whether you can truly afford to part with the money.