Relationship Lending can be a sticky mess. So here’s a guide for all the people that have been taken advantage of for their generosity in lending money.
This blog pretty much came about because of a situation I was put in because a friend avoided paying me back the money she owed me. She would use every excuse imaginable and would simply not reply to any message if it concerned the loan.
So I put it to you, have you lent your friend some money and in the end it reached that point where you’ve had to chase it up so much you’ve just given up?
My issue with Relationship Lending
Let’s think about it rationally. The first point I’d like to make is that it’s not just you, things like this happen to a lot of people and it’s just life, or more like one rotten individual that decides to take advantage of you. Also, relationship lending is a constantly increasing way of loaning and borrowing money, and with no formal documentation, situations like mine constantly occur.
I know people will say it’s a good learning experience, but heck, it shouldn’t be seen that way. As a child, I was brought up to repay or give back what I borrowed. It’s just common decency. Where I’m from it’s definitely not a thing to avoid paying someone back. It’s not just rude, but that person is being selfish and potentially risking a relationship.
Let’s face it, it is an experience we learn from. As we hear and learn about experiences like this we learn to be a bit more careful with our money and whom we lend it to. These next few steps are what I’ve come up with that help me loan between family and friends in the safest and most manageable way.
Look at their history
If it’s a friend you’re lending to, have a solid think about past events. Specifically think about situations where splitting bills, buying rounds and offering to pay have arisen. For example, if you’ve offered to pay for something of theirs do they offer to split it or even repay you, or do they just let you pay it? If you buy rounds do they actually buy ‘the next round’? Do they offer to pay for you when you go places?
Another key aspect of this is to consider how close you and this person are. Are they someone you enjoy spending time with and constantly catch up with? Maybe they’re the kind of person that doesn’t stay in touch and waits for you to contact them. Maybe they’re a family member like a parent or sibling. Or maybe they’re a distant European cousin saying they’ve got cancer and need help…..seems legit right!
Look who’s asking!
Are they asking or are you offering? Always consider who’s initiating the loan. I’m not saying don’t lend to people that are asking, however, suss out the importance of the loan to them and the reasoning for the initiation.
Let’s put it this way, if someone’s whining to you about needing money and they’re obviously hinting at you loaning the money to them, then maybe it’s an ‘enter at your own risk’ situation.
Some people may approach you in a reasonable manner. For example, sit you down, ask for a loan and offer repayment details straight off. They’ve obviously thought about it, really need the loan and want to prove to you they can be trusted.
If someone you’re friends with but don’t see often asks for a loan, to me, I can see red lights flashing. Maybe they’re a genuine person and simply trust you over anyone else, but be sure if you do progress you have other methods (listed below) in place to make sure it’s repaid.
Let’s put it this way if they honestly need the money and have every intention of repaying the money then they won’t mind if you charge an interest rate or even ask for some cash on top of the loan for agreeing.
Personally, I don’t use interest as a way to make money off someone in need, however, it’s more of a security mechanism for me. By them agreeing to the interest/interest rate they’re saying, I need the money and this interest is an assurance for the lender.
Our society is constantly becoming more tech savvy, so it doesn’t surprise me that there’s an exponential growth in fintech (financial technology). One in particular, that I would definitely recommend is credi.com!
When I started working at Credi and understood the platform and thinking behind it, I realised that I’d never make this mistake again. Signing up for a Credi account is simple and it’s FREE! It’s a great little tool that helps to make relationship lending formal, safe and manageable. The platform even has adaptive and unique features such as E-signing, repayment schedules, email & SMS notifications, interest rates, negotiation and much more.
With these key steps, I find relationship lending a much easier and less stressful process. I’m constantly lending to my siblings and now that I follow my own little guide I no longer have to chase people up or have arguments surrounding unpaid loans.
I hope these steps on relationship lending help you lend and borrow from friends and family.