Should I lend money to family?
When asked should I lend money to family my response is always the same, no. My experience loaning money to my parent has proved disastrous for my relationship with them and my wife.
Loaning money to family is one of the worst things you can do for a relationship. Unless, you don’t mind being the debt collector when your sister, mom, dad, or cousin don’t pay you back on time.
My personal story of loaning family money was three years ago when my parents almost lost their house. They had failed to pay the property taxes for seven years on their house. I thought the county was pretty lenient on how long they’ll let you go before they foreclose on a property. However, they are quick to put it on the auction block when they do start the process. As I recall we had about 6 months to come up with the money which was a little over $7,000. My parents had no money to speak of. My mom has been disabled for the last fifteen years and my dad hasn’t worked in over a decade. So money was tight to say the least.
I tried to help my parents by taking them to the bank and get their own loan. My plan was to get a loan on the house in their name, but they were denied due to bad credit scores. This denial literally left them without any options except to borrow it from family members. At the time none of my siblings were in a financial position to loan them the money. Furthermore, my moms sisters were unwilling to help out. And in hind site I can see why. So my wife and I took out a loan to pay their taxes. I feel if I could rewind time I would make the same decision, but I would create a formalized payment plan.
This is what I would do differently
If you find yourself in this kind of situation take the steps I wish I would have taken. First, I would have both of my parents at my side when I applied for the personal loan. Since this really was their loan I was kind enough to take out on their behalf. Even though I applied for the loan online I think they would have a more emotional reason to pay me back. Because they physically saw me applying for their loan in my name.
Next, I would create a formal document using Word stating the amount to be paid every single month and when it was due. This way I’m not awkwardly calling my mom and dad willy nilly asking for payments. I’m at the point now where I ask them for the money when my wife asks me to, this is not a good position to be in.
Third, I would have my parents sign the document I created in word. Not for legal purposes but more for a mutual understanding. Finally, I would set them down and tell them how I love them but my priority is my family and I expect to be paid back in full and on time. Of course I would say this as tactfully as possible.
I understand loaning money to family at certain times might be unavoidable but I would recommend not doing it at all. It has put me in an awkward position over the last three years. I criticize everything my parents spend money on because they’re not paying me back. In 2016 I received one payment from my parents and it was $20. Also, now there is tension with me and my wife on when they’re finally going to pay us back, it’s an ongoing battle. I hope you never have to get in this position, but if you do what I didn’t.
Bottom Line: Don’t lend money to family. But if you do make the process as formal as possible with terms and expectations that I laid out above.