The Downsides of Social Lending Between Relatives
1. If a lender refused to give a loan chances are you should too. In many instances family members who had been turned down by a loan institution do end up defaulting on loans raised from family members. This means it may take forever or never get back your money.
2. A default on a family loan could cause to you to have to sue your own in order to recover your funds. This could lead to a huge financial and emotional strain on you and your family.
3. The family member may start showing signs of irresponsibility by going on spending sprees or taking out a new car instead of honoring the loan payment.
4. There may have been insufficient attention to making the agreement legitimate by asking the relative to sign off on an agreement. This could leave you in a bad spot without any proof it was a loan.
5. You may not have known the individuals money management style before, and was therefore unable to adequately assess your risk.
6. You may find you have breached tax laws because you chose to forgive balances or payments or charged too little on the interest rate.
Tips on Encouraging a Family Member to Get a Personal Loan
1. It may not be easy, but it is time to be brutally honest. It is time to assist your family by giving them advice rather than money. Firstly declare to the individual that you will not be able to assist with another loan. This will remove from his/her mind any thoughts of trying to be more persuasive.
2. Let the family member know that in any case you would opt to use the services of a social lending company so you would not have to deal with the hassle of recollection. This would further serve to let them know they will not be getting a direct loan from you again.
3. Now offer them some advice on the benefits of getting a personal loan as opposed to borrowing from you. Their credit score can be improved in a very short time and the loans are short term loans.
4. They will also benefit from advice and assistance from a professional financial adviser, and finally learn to take control of their own finances. This would allow them to become financially independent and no longer have to bother family or friends for a loan.
5. Personal loans are another variety of loan that helps to boost credit history once it properly managed.
Constantly helping out a family member in financial crisis will never help them to grow financially. Giving them advice that leads to financial freedom is of more value than providing them with instant cash.
Peter Coppola is a personal finance and insurance expert. He mainly writes for personal finance and insurance blogs. Visit EasyFinance to learn more about short term finance options.