In times of economic crisis, there is often no financial space to take out a loan with a high interest rate. Borrowing from acquaintances or family is becoming increasingly common for this reason. It is rising in popularity over a high-interest loan. It is quite natural that people want to help each other in times of financial tightness, but it is often forgotten that complications can arise later. A peer-to-peer lending site (p2p lending) can offer a solution. How do you lend money to family or acquaintances without problems arising later that could damage the relationship? The two most important rules are:
- keep things clear
- remain professional towards each other
In the beginning, acting professionally will feel very uncomfortable with family or acquaintances. It will later become apparent that both parties will benefit from it because talking about money matters in a professional manner simply provides a lot of clarity. Below are some guidelines about lending money to family and acquaintances.
Decide how much money you want to borrow
Lending money to acquaintances is often a sensitive subject, so make sure that both parties (the lender and the borrower) have realistic expectations. It often feels better to view the loan as a gift. But if in a particular situation it is not appropriate to view the loan as a gift, it is wise to consider the following:
- Can the lender afford to lose the money lent if the loan is not repaid?
- What situation is the borrower in? Can the loan be expected to be repaid over a realistic period of time? What is the money used for? And can the person in question be trusted?
Engage a third party (A P2P Lending Site, P2P Lending)
It may be wise to engage an independent third party to handle the process. A notary or accountant can handle the paperwork in a professional manner and clarify all expectations. The use of a peer-to-peer lending site (p2p lending) is also popular. This is a website that acts as an intermediary for loans between acquaintances. Such services of such a website include preparing paperwork and collecting periodic payments.
Make sure that both parties understand all parts of the loan. The components must all be recorded in an official document. What should definitely be included:
- the exact amount being borrowed
- the interest rate that is used
- the periodic repayment schedule
- which serves as collateral for the loan
In addition, a clause must also be included stating what the borrower must do in the event of financial distress.
If you lend money to or borrow money from family or acquaintances, you must be aware of the tax authorities’ rules regarding gifts and loans. Under certain conditions you may deduct the loan from your equity. If the loan is considered a gift, maximum amounts apply.