Mobile money-sharing apps make loaning money to friends and family easier than ever before — even if it’s only $100 or so to get them to pay day.
Nine out of ten Americans are more than happy to lend money to a friend or family member in need. It’s a nice gesture — here’s how to ensure it stays nice.
How to Loan to a Friend – And Get Your Money Back
If a friend or family member asks you for a cash loan, first weigh the pros and cons, and then proceed carefully with the goal of getting your money back in mind.
Start with these three key elements to ensure you’ll not only get your money back, but you’ll keep your friendship intact, too.
1. LAY DOWN GROUND RULES
If you do loan cash to a friend, lay down some formal guidelines that spell out the obligations on both ends of the transaction.
Clint Evans, founder of Stand Out Authority, a marketing consultancy in Austin, Texas, advises both parties to keep the transaction simple.
“We downloaded a blank agreement off of the internet and personalized it based on the terms that both parties agreed on, including late payment terms.”
2. KNOW THAT LOANING MONEY TO FRIENDS OR FAMILY HAS THE POTENTIAL TO RUIN A RELATIONSHIP
Evans suggests that if you loan to a friend or family member, be prepared for a 100 percent loss — if you want to preserve the relationship. “If a close friend has a reason you deem justified why they can’t pay, I wouldn’t persist with collection efforts,” he notes. “I would drop it.”
That said, money is a minefield that can damage or destroy a friendship. Always start with the mindset that they may not pay you back. If the worst case happens, the friendship is harmed but can still recover with time.
3. IF YOU AREN’T REPAID IN A TIMELY MANNER, IT’S TIME TO TAKE CREATIVE ACTION
In a loan agreement between friends or family members, the lender should expect the money to be paid back promptly. Continue communicating during the payback period, experts advise.
“If the lender isn’t paid back, the borrower deserves a chance to catch up,” says Latoya Rose, a financial wellness expert who specializes in online lending platforms. “But if you set up the loan on an online P2P or other lending platform, which you should, you can ‘push’ the process along by using the platform’s payment link to ask for payment, as a reminder to the borrower.”
LENDING TOOLS: P2P PLATFORMS
On the digital side of the issue, peer-to-peer lending and payment platforms, like the ones Rose mentions, can be a helpful option. These are rapidly becoming tools of choice for both lenders and borrowers, especially financial consumers who tend to embrace technology.
Digital P2P lending and payment platforms aren’t exactly the same, although both strive to enables people to get loans easily and quickly.
P2P Lending: When lending money to friends or family, lenders can earn a profit on the loan based on an agreed-upon interest rate. This approach is growing quickly, at an expected rate of 53 percent between now and 2020.
P2P Payment: Users simply ‘tap an app’ on digital devices to transmit money to friends and family, usually with no interest rate on the loan, unless the two parties agree to one in advance (the apps can also be used to pay bills and pay for services). These apps are also fast-growing, driven by financial technology firms, banking and financial institutions, and small startups.
FRIENDSHIP VS. FINANCIAL HEALTH
Above all, never put yourself in a situation where you’re lending more money than you can afford to lose. In that regard, you come first.
In any loan situation with friends of family, tread carefully. Handled correctly with the above tips, and with both parties willing to be transparent, a friendship loan can work out well for both parties.
