Boundaries to set before lending money
JOSH MASCARIÑAS
Do you find it hard to refuse a friend or a family member who asks for money in times of need?
Deciding whether to lend money or not can be settled. Your final decision matters because you would have to deal with the possible consequences—like someone holding a grudge on you—if you decline.
On the other hand, if you do lend money, you might have difficulties getting that back from person who owes you.
“Saying no can be easy if you’re struggling to cover your own expenses. Yet for those who can afford to part money, knowing how to set boundaries can be challenging,” said CNBC personal finance writer Sarah O’Brien.
Establishing parameters before lending money is important. To help you handle such situation, here are some notes from O’Brien to keep in mind.
Ask about the purpose
The first thing you should know before lending money is the purpose behind the need to borrow. Whether the loan amount is P1,000 or P10,000, you have the right to know where it will be spent on.
“The greater the amount, the more detail you should get on how and when it will be paid back,” O’Brien advised.
Being cautious will help you assess whether you will say yes and lend money or say no and turn down the request.
Inquisitiveness becomes relevant in lending. Let them first explain their intention. After all, it’s your hard-earned money they will borrow. Safeguarding your funds is your primary task so think twice before lending any amount of money.
However, if the reason is worth giving a shot, trust your guts and consider lending your money.
Feel free to say no
You’re not obliged to agree when someone asks for a loan. If your finances is at stake, say no immediately.
O’Brien recommended not to use your savings or retirement funds when lending money. Protect your savings especially when they are allocated for future needs.
For example, if a relative is borrowing money to invest in a business and you see low potential in the business plan, say no. You can’t afford to lose your money in a blink of an eye. Refuse if the planned use is unwise.
“Do not be afraid to say no,” said Bryan Bibbo, an investment advisor and financial coach of JL Smith Group in Avon, Ohio. But saying no comes with an explanation as to why you can’t loan money.
Giving reasons can help them understand your decision. All they have to do is respect it.
Set terms
Once you decide to loan money, O’Brien proposed terms the borrower should strictly follow.
For a small loan, the borrower can pay it within a short period of time. For a large amount, you should provide a document wherein repayment details are indicated. Include the amount of monthly payments, specific date of when the loan should be paid in full, and interest (if the borrower is willing) in the written contract.
Taking full control in drafting such terms is important. But this doesn’t mean you will write down a contract that only favors you. It has to be fair.
Ensure that you and the borrower will arrive at an agreement to avoid possible conflicts, like the former struggling to comply with the terms you’ve set.
If you find these notes demanding, feel free to make adjustments. Just keep in mind the money you have earnestly saved.
You can be considerate by understanding the borrower’s situation and the reason why he or she needs funds.
But, do assess the abovementioned reasons because you also have necessities to address.
If ever you say no, make sure to follow the boundaries you’ve set. It’s not like you’re disregarding the borrower’s request in an instant.
Remember, you can help them in other ways. It’s not all about lending money.
Josh Mascariñas is a content writer at MoneyMax.ph. Save money on car insurance, credit cards, and loans when you compare and apply at www.moneymax.ph! Visit our website to know more.
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