Not having a contract
Yes, I know it might seem like you don’t trust your friend or family member (hereinafter called the Borrower) but it’s better to have specific terms decided in writing than no parameters at all. To make sure everything is clear and there will be no misunderstandings in the future, draft a contract and have it signed by all parties involved, recommends Charnet, even if it’s your sister or brother-in-law.
Omitting essential details
Once you’ve decided about drafting a contract, you have to make sure you don’t leave out any essential details such as amount and timing of repayment installments (weekly, monthly, quarterly), final payment deadline and so on, suggests Jully-Alma Taveras, founder of Investing Latina.
It’s really great that you have the financial means and availability to help one of your friends or family members, but it doesn’t mean they can take advantage of your generosity. It could happen. So set clear expectations and agree on important details together.
Not involving a legal professional
If you want to avoid any misunderstandings and disagreements when lending money to a friend or family member, you might want to involve a legal professional in the equation, suggests Holly Andrews, managing director of KIS Finance.
Keeping things informal and friendly can cause unexpected problems along the way. Treating the loan in a professional manner and seeking legal input will be in the interest of all parties involved. It will give you as well as the borrower legal back-up in case things go south.
