When it comes to loaning money to family and friends, my advice is simple: just say no. The risks and challenges of lending money to friends and family outweigh the benefits of that loan. This isn’t to say that you shouldn’t help family and friends in moments of need, but that a traditional loan structure is not a wise choice.
Let’s dig into the reasons why a typical loan to a family member or friend is a bad idea, and what other options you have if you want to help out a family member or friend.
Why loaning money to family or friends is a bad idea
First of all, lending money to someone is a financial risk. Lending institutions mitigate that risk by doing a credit check and looking into your employment history. With family and friends, all that you really know about the other person is what you’ve been able to see. You don’t know if Cousin Ed fails to pay his bills fairly often, or your best friend Carol has a huge amount of credit card debt. That means that … Read More