According to, the Observed Denial Rate for traditional loans is 11%, which means that you are not going to get approved for loans easily. This is why people turn to their family or friends for help. However, one of the worst ideas that you can have is lending money to your friends and family members and the reason behind this is that the loan is responsible for putting the relationship that you share with them in jeopardy. However, when the person you care for is in trouble and you have money; it is obvious that you cannot say no to that person. 

In this case, you need to be smart and you should be setting up certain important terms as well as a repayment schedule according to which your family or friends will pay the money back to you. If you feel that the person to whom you are lending money has no plans of returning the money back, it is your duty to explain the terms to them. However, if your money is in safe hands, you do not need to worry. 

When a person you care for, asks money from you, you should not take an abrupt decision. It is your responsibility to think before you give money or refuse to do so. Question the person regarding the various other avenues that he has tried for procuring the money. If you see that he is in debt and is not going to qualify for the traditional bank loans, you can consider helping him. However, you should definitely ask because it is important that you get the financial disclosure. When you are lending money to someone, it can be stressful. Given below is a list of the tips that you should definitely follow for lessening your stress.

Dealing with cash

If your friend or family member asks to open credit cards and they are going to be the ones who use the cards, or if they request you to co-sign loans, it is your duty to shut the scheme as fast as possible. You should not be in a situation where the actions of some other person are responsible for affecting the ability to borrow money in the future or even securing credit. This is why you should deal with cash, as cash can be controlled and when you are lending it, it is not going to affect the credit score in any manner. You should deal in cash and if your family member or friend wants something else, you should be able to decline politely. 

Lending what you are capable of affording

You might already know about the old saying, which states that a person should never give more money than what he is capable of affording. When you are lending money to someone you love, it is crucial that you understand this. There is a high chance that the money that you are lending to your family member or friend is never going to be paid back. If you want to forgive the loan, it is best that you lend only that much amount, which is not going to affect you in any manner. Even a person who is extremely responsible can default on the loan. If you are not okay with someone defaulting with the loan, you should not lend money at all. 

Considering the impact

When you are lending a certain amount of money to someone you love, you have to be extremely careful. If you are lending money to one member and refusing to lend money to someone else in the same family, the relationship that you share with the latter can be ruined. There is a high chance that he is going to spot favoritism, and it is your responsibility to think before you give a loan because it can affect what other people are going to think about you. 

If you are a parent and you are considering giving a loan to your kid, it is definitely a great idea to start a meeting with the rest of the family members and discuss all the terms in an open manner. In this manner, your other kids are not going to get hurt or confused by the decisions that you have taken.

Getting complete details

It is true that you do not want to hurt the feelings of the people you love but it is also your responsibility to gain knowledge about where the money is going to go in order to decide if it is worthy to lend money to that person. A bank is never going to hand money blindly over to the customers without gaining sufficient knowledge about where it is going to be spent. 

If you see that after you ask questions, your family member starts getting offended, it should be taken as the red flag and you should not make the deal. However, if you have all the necessary details, it is alright if you start following them up. For instance, if your friend is asking for money for purchasing a home, you can check the home out, the costs, and the neighborhood. This will allow you to get first-hand information, which will help you to decide whether or not you should lend money. 

Charging interest

Charging a rate of interest to your friends or family member can seem unnecessary. However, it is one of the ideal ways of protecting yourself. A fair rate of interest is going to inspire them to clear the money back timely. In case if the loan is large, it is your responsibility to confirm with the accountants as to what you should be doing for protecting yourself. You can visit the website to know more. 

Discussing the terms

It is true that discussing money with your family members and friends can be extremely awkward. However, it is best that both of you clarify the total amount that is being loaned, the interest rate, the schedule of repayment, and also the late fees. This is going to ensure that there is no confusion or miscommunication in the future. 


It is not a bad idea to lend money to people whom you love. However, you definitely need to be more careful and follow all the tips that have been mentioned above so that you can be safe.