When Someone Asks You For a Loan
Even though we may be dealing with debt ourselves, the situation can arise when someone we know asks us for a loan. They may not even realize that you are under debt review and may just see that you are in total control of your finances and so you may seem like a good person to approach to ask for a loan.
What can you do in this situation? What should you do?
Here are some questions that you need to consider asking both yourself and the other person:
How much is needed exactly?
When is the loan needed?
When will the loan be repaid?
Why have they not approached a credit provider?
How reliable is this person and how well do you know them?
What will happen if you never get that money back?
If you do not have any available funds to lend the person then the answer should be a hard “no” straight away. Do not lead them on simply say that you do not have anything available.
If the person is coming to you then you need to ask them why they are not going to a bank or credit provider whose entire business revolves around giving out loans? Surely they would be the best people to speak to… It may seem rude or harsh but that is the business they are in. you are not in the loan business (otherwise you would have to register with the NCR).
If you do have a little money available (perhaps saved towards an upcoming annual expense) and really trust the person then you could consider the loan but should think about going a little further than simply opening your wallet or purse and giving them the money right away.
‘be sure to get the arrangement in writing’
You should be sure to get the arrangement in writing and have someone, preferably two other people you know to sign as witnesses of the arrangement. If this is embarrassing for the person asking for the loan then…they can head to the credit providers offices rather. Getting it down in writing and having it witnessed adds pressure to the other party to live up to their word and helps avoid any confusion about when and how the money will be repaid. It also helps should they not live up to their word as you can take the matter to small claims court if needs be.
Be sure to include when the loan will be repaid exactly. You could even insist that if the loan is not repaid on that particular day then you will both meet at a specific credit providers offices the very next day (add a time) so that they can apply for credit there and immediately repay you what they owe you.
Get Invasive – Like The Banks Do
Another move invasive step that you could take is to ask for information about the person asking for the loan’s overall financial position. Now, this is a tricky one. They will probably hesitate to give you this but if the amount is a larger one then you need to know how much risk you face. If they really want the money then they should be prepared to provide this info. This is basically what all credit providers do when you go apply for a loan. You would want to know (in writing and even with proof if you go that far) (1) what the persons household income is from all who are working (2) their monthly running costs (3) how much other debt they have and what those payments add up to. This will then let you see (4) how much they have left over each month to repay you. If the figures look too bad then rather take a very long time to think the matter over. Remember that you do not need to say yes.
These steps will not win you any friends but they may protect you from giving out a loan that you will never get back. It can also protect you from some of the scams going on out there. Recently in Thailand, a large group of men found that they had all been scammed into signing up for car loans by a pretty girl who pretended to work at a bank and be romantically interested in them. Once she got the car she disappeared leaving them with all the debt instead of repaying the monthly instalments like she said she would.
Lending Money Causes Problems
They say that if you loan to friends or family that you must be prepared to say goodbye to the money and should never really expect it back. You should also expect that it will harm your friendship in some way. So, think long and hard about which you prefer, the money or your friendship.
‘if you loan to friends or family that you must be prepared to say goodbye to the money’
Remember that you do not have to say yes when asked to loan money. It is very likely that you will never get all the money back. Also, it is good to recall that there are thousands of credit providers who specialise in just that business. So if you can afford it then do things in a responsible and official way and get everything in writing. If not…Just say No.