By Cameron Huddleston
WWR Article Summary (tl;dr) A 2016 survey by online lender iLoan found that only half of people who lend money to friends and family get paid back in full. Something to think about before you give
Loaning cash to a friend or family member in need might seem like the right thing to do. But letting people borrow money from you can be a big mistake.
Ted Jenkin, co-CEO of oXYGen Financial, said that in his 25 years as a financial advisor, he’s never seen a situation like this turn out well. And credit expert John Ulzheimer went so far as to call the idea of lending to loved ones disastrous.
“If you’re being asked to loan money to friends or family, it’s likely because they cannot get credit from an actual lender,” he said. And there’s probably a good reason that person can’t get a loan from a bank or credit union.
If you’re asked to lend money to friends or family, here are six reasons you should consider a polite refusal.
YOU MIGHT NOT GET PAID BACK
A 2016 survey by online lender iLoan found that only half of people who lend money to friends and family get paid back in full. Ulzheimer acknowledges that we’d all like to believe our loved ones wouldn’t stiff us this way.
“That’s simply not true,” he said. “If there’s no formal promissory note, your friend or family member has no obligation to pay you back, ever.”
If you do want to make a loan to a friend or family member, Ulzheimer recommends taking the steps that a financial institution would before lending money. Ask for a copy of the person’s credit report and credit score along with proof of income. Then, agree to a timeline for repayment and an amount to be paid each month.