by Jonte Rhodes

Created on: November 16, 2008   Last Updated: February 08, 2009

Loaning money to friends and relatives is something that often comes back to haunt a lot of people, due to the fact that often the money isn't paid back very quickly, if at all. This can then often cause problems between the two parties, because of course both think the other is at fault. Fortunately there are several easy ways to make sure that either you get paid back, or that friends and relatives won't ask to borrow money from you all the time.

The main reason that problems seem to arise between friends or relatives lending each other money is the fact that they have different ideas about what the terms of the loan are. The person borrowing the money is usually under the impression that because they have borrowed from a friend or relative, rather than a bank, that they don't have to pay back very quickly. Because of the fact that no interest is being added as with normal loans, the borrower is under no pressure to pay back the money as fast as they can.

By contrast the person lending the money usually thinks that because they are lending the money to someone that knows them, that they will be more obliged to pay them back quickly. Because the lending is seen as a favor to the person borrowing, this often exacerbates the problem when the borrower doesn't pay the money back either in reasonable time, or sometimes at all. As a general rule it is better usually not to lend money to people who are unlikely to be able to pay you back any time soon, particularly if they have a history of such behavior.

When asked for money, the first thing to do is to stop and think about the situation of the person asking for it before feeling obliged to hand anything over. So for example if a relative asks you to borrow some money to tide them over for a week or two. But at the same time they don't have any means of income and aren't terribly responsible, then lending them the money isn't a good idea if you want the money back ever again. If on the other hand a friend asks you to cover something because they have forgotten their wallet. But at the same time they have a good job and are generally trustworthy, then lending to them might be a safe bet.

If you are worried about not being paid back before you have actually leant someone any money, then generally it isn't a good idea to do it. If you are still finding it hard to turn someone down however,r, then creating a legal contract is another, albeit rare option. Just the same as any bank or loan company would use, a contract eliminates

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