When struggling financially, many people will turn to family for help. Whether this is the first place they go or a last resort is often dependent on their individual relationships.
Lending to others is actually commonplace in the UK, with an estimated 4.6million people borrowing from family or friends in 2022. So, what should you consider if a family member asks you for money? What are the reasons you should or shouldn’t lend them money? And is there a way to make it easier?
Initial Considerations
If a family member asks you to lend them money, before saying ‘yes’, you should make sure that you can afford it, that you would be able to cope if it was never repaid, and that it wouldn’t negatively impact your relationship.
Reasons to Say ‘Yes’
The main reason most people say ‘yes’ to these requests is because they want to help their loved one. Being helpful and charitable are both proven ways of boosting self-esteem. By agreeing to help, you may also prevent your relative from having to resort to high-interest payday loans.
Reasons to Say ‘No’
There are a couple of reasons that you may want to say ‘no’, even though it may feel mean. Firstly, it could affect your relationship, particularly if there is a dispute over the repayments.
Secondly, there is a risk that the loan won’t be repaid.
How to Make it Work Better
If you do agree to lend money to your family member, there are steps to make it easier. These include putting the agreement in writing with agreed terms and set payment dates, and keeping records of any repayments as they are made.
Loan Agreement Experts
A loan agreement is a written document that outlines the terms and conditions of a loan. This can be useful as it helps to avoid disputes and makes responsibilities and timelines clear.
There are a number of law firms with loan agreement experts. Many of these have useful online resources, such as the examples seen here: https://www.parachutelaw.co.uk/loan-agreement.
Alternatives
If a family member asks for money but you don’t have access to the funds, you could offer to act as a guarantor on a loan. This means that you agree to cover any repayments that they miss. To be a guarantor, you have to be a homeowner and have a good credit rating.