How to Loan Money to People
Everyone experiences financial difficulties from time to time. And when unexpected situations arise, these individuals likely seek funds to meet their expenses. If you're in a good financial position, you may have considered lending money to family and friends in need. There's nothing wrong with helping someone. But before signing your name on the check, take steps to ensure a smooth process.
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Instructions
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Decide whether you trust the person. Lending your personal funds to someone is risky, and the person may not repay the money. Before making a decision, take into account the borrower's credit habits. Does she pay her bills on time, or does she have a history of skipping and sending late payments?
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Agree on a loan amount. Speak with the borrower and inquire about his financial needs. If you are in a position to assist him, negotiate a loan amount with the borrower.
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Establish an interest rate. You may decide against charging interest on a short-term loan. However, if you're lending a sizable amount of money, charge the borrower interest.
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Establish a loan term with the borrower. As the money source, you can decide a loan term, and the borrower can either accept your terms or pass on the deal. Along with establishing an interest rate and term, determine a set fee for bounced checks and late payments.
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Create a payment arrangement. Talk with the borrower and determine a payment arrangement. How much will they pay a month, and for how long? When is the due date? What type of payments will you accept--cash, check or PayPal?
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Put everything in writing. Before lending a dime, make sure the borrower reads and fully understands the agreement. If they're prepared to accept the terms of the agreement, ask them to sign the contract.
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Tips & Warnings
To calculate interest, multiply the total loan amount by the interest rate, and then by the loan term (in years). This gives you the total interest. Next, add the total interest to the loan amount, and divide this number by the loan term in months (ex. three years equals 36 months).
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