Do you lend your money to friends and family? If so, what is your most common reason for doing so?
Beginners Guide to Lending Your Money
Investing your money can seem like a daunting task if you don’t know where to start. If you’ve been looking for a reliable and trustworthy way to invest but don’t have the time or knowledge, lending your money to friends and family might be your perfect fit.
If you are investing your money in the stock market, then lending your money is one of the best investments that you can make. When you lend your money, you are putting someone else’s money to work while still earning a return.
Considerations for Lending to Friends and Family
When lending money to your friends and family, it helps to have a plan. That way, you can ensure that the loan will be repaid and limit the risk of you losing any money in the process. Here are a few things to consider before planning on loaning someone else some of your hard-earned cash:
When you lend money to family and friends, it’s important to keep these factors in mind.
How Much Should You Lend?
Before you make a decision about how much you lend to friends and family, it’s essential that you know the true cost of borrowing. You might think that your friend will pay you back with interest, but this rarely happens. For example, if your friend has a credit card with an 18% annual interest rate and he borrows $3,000 from you, it will cost him more than $700 in interest alone for one year! It’s best to lend only what money you can afford to lose in case the borrower doesn’t pay it back.
When you lend to friends and family, you don’t want to leave yourself vulnerable. Here is a list of some things to consider before lending your money.
What Are The Return Rates From Loans Made to Friends and Family?
It’s not always easy to get a loan. Many people turn to friends and family in order to borrow money, but just how much of the time can you expect to get your money back?
If you lend money to a friend or family member and the person does not pay it back, what can you do? You may be able to take legal action against them, but this can be a costly process. For example, if the loan was for $1,000 and the person did not pay you back, then you would need to pay lawyers $2,000 just to start the lawsuit. If they don’t have $2,000 they could probably put their house up as collateral instead of paying you back with interest.
When you lend something to someone, it’s not always in the best interest of the lender. A person with no credit score can end up defaulting on a loan that you lent them money for. The lender may end up losing their hard-earned money and the borrower may think nothing about being unable to pay back the loan. However, if you combine loaning with a gift or having an item shipped, then your risk is lower.
The one thing to keep in mind is that the rates of lending fluctuate, so while it’s best to start out small with loans from friends and family, you should still get a number of quotes from different lenders.