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    User Post: How to Lend Money to a Family Member

    By FiGuide.com | Financially Fit – Tue, Sep 13, 2011 7:19 AM EDT



    We all have the one family member, whether it's a child, sibling, or even a parent who has talked about the need to borrow money from someone in the family.

    Lending money to someone inside the family can be a very delicate matter. Say no and you risk souring the relationship. Say yes, and you risk losing your money and souring a relationship. It's the ultimate Catch-22.

    Timothy Burke of Nationalfamilymortgage.com deals directly with family members seeking assistance managing the inter-family loan process and offers these 5 tips.

    1. Document the loan. The IRS requires it and if you don't the IRS could consider the loan a "gift" and set a gift tax
    2. Set a proper interest rate. Another IRS requirement for it to meet the requirements of a loan, and not a gift
    3. Lend for the right reasons. Ensure the loan is something you believe in
    4. Agree upon a payment plan AND put this in the loan documents. Details matter and can be referred to when there is a dispute
    5. Involve an unbiased third party. It's the cleanest way to enforce a contract when there is a dispute

     

    9 comments

    • TrayCee
      TrayCee  •  8 months ago
      Not wise for any reason to loan money to family or friends. If you do end up lending it you should consider it a gift and not expect to see that money repaid.
    • K.
      K.  •  8 months ago
      seems like a bad idea all together lol

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    • A Yahoo! User  •  8 months ago
      Loans to family? NEVER EVER EVER!!!

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    • hmmm
      hmmm  •  8 months ago
      here's a better idea - don't. Either give it to them and expect nothing back or just refuse
    • Diane
      Diane  •  8 months ago
      I agree with Kara. I believe it is wise to never borrow money from, or lend money to, family or friends. Give it as a gift. If they return it, great. If not, great. Lending money will only cause massive resentment and could result in relationship breakdowns.
    • jen
      jen  •  8 months ago
      I do not lend anybody money I have had enough experiences over the years and don't go for it. If the family member is not trushworthy you won't see it again.
    • Kara
      Kara  •  8 months ago
      I abide by the rule that if a family member asks to borrow money, I assume I'll never see it again. If I'm not comfortable with that, then I don't loan it out. That way, there are no rifts, I don't have to be a collection agency, and I genuinely appreciate when I get the money back. I've also had a lot of help from my family getting on my feet as a young adult, so I enjoy paying it forward.
    • Athelda
      Athelda  •  8 months ago
      This may be an issue more and more as job seekers go without work. Just because the issue is particularly sad doesn't mean that it shouldn't be done in a professional way. Drawing up terms for repayment is essential. It is also important to know that unemployed family members are actively looking for work. Do they have resumes in hand?

      http://speedoflife-times.blogspot.com/2011/08/re-vamp-your-resume.html
    • Luke
      Luke  •  8 months ago
      Article forgets to point out that $12,000 and under you don't have to pay a gift tax. It also doesn't mention that where a loan is used be relatives to be a factor on weather or not if the loan can be deducted as a investment expense.
     Post a comment

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