Do You Have Enough Personal Money To Lend Others?

You feel financially stable and are willing to lend personal money to others. Taking a quick look at your bank account, there is little concern.  But have you asked yourself the right questions to find out if you have enough personal money to lend others? Here is a short list of personal lending questions that you should run through your head.

Personal Lending Questions

  1. Should your friend never repay you, will you be financially secure?
  2. Are you willing to give up a friendship because of money?
  3. Do you have a money emergency safety net of at least 6 months of living costs?
  4. Do you foresee yourself needing this money for a large purchase?
  5. What kind of liquid assets do you have? How quickly can these assets be sold for cash?
  6. Do you have a family, children or others you are responsible for?
  7. Does your wife or husband approve of this loan?

Once you have decided that you will be financially sound, there are some other important things to consider.

Friend Asking For A Loan

If you have a friend asking for a loan, they are probably asking you for a loan for one of two reasons. The first reason would be that they are unable to obtain a loan through normal channels due to credit or income issues. The second reason would be that they are able to obtain a loan through a bank but do not wish to pay interest on the loan. Even though lending money to a friend is a noble act, it may be loaded with consequences if you do not loan properly.

Create a Lending Contract

When loaning your personal money to others, it is important to have a written contract with the other party. This protects you in the event that they default on the loan. It also protects them in the event that something was misunderstood about the loan. If you find yourself in a situation where you must take the other party to court, the deciding factor on receiving a judgment for repayment will usually rest on that written agreement. Many friendships have been dissolved as a result of loaned and borrowed money disagreements.

Deciding to loan personal money to others is a big decision. Deciding on an interest rate, if any, can be an important factor in your decision. If you are lending money, it’s a good idea to try to use these loans as investment opportunities to help your money grow. Investing through personal loans offers one the opportunity to earn interest which tends to be a higher rate than the savings accounts rates and mutual fund rates. As always, investing is a risk. You may find yourself losing money on a personal loan for the simple reason that some may not repay the loan.

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