By Beth Kobliner, REDBOOK
One in three Americans say they'd ask friends and family for a loan to cope with a crisis, a recent survey from the National Bureau of Economic Research found. But before you become the Bank of BFF and bail them out, heed this money-lending advice:
Put it in writing. A loosey-goosey lending arrangement is a recipe for tension. To avoid blowups, have both parties sign a document that sets the terms (say, six months) and whether repayment will come in installments or a lump sum. Type it up yourself, or go to nolo.com to download a formal promissory note for $15.
Related: 30-Day Money Cleanse
Charge interest. Seem cutthroat? It's not; interest makes a loan feel less like a handout and more like a mutually beneficial deal. Ask for at least the amount your money would make sitting in a savings account--currently around 1 percent.
Know when to say no. Set a lending limit by subtracting three months' worth of expenses (the minimum you need saved for emergencies, though six is better) from your total savings balance. What's left is the amount you could potentially lend. But pay off any debt you have first--there's always the risk that your friend or relative will flake on paying you back. Can you really afford that? If not, be honest and say you can't swing it.
REDBOOK's money expert, Beth Kobliner, is the author of Get a Financial Life and is on the President's Advisory Council on Financial Capability.
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