Family loan is the credit given by one person to another on the basis of trust and relationship. This debt agreement may not necessarily be among blood relations only, it can be between two friends who know each other from long time and have a deep social or personal relationship as well as trust and cooperation for each and other.
This is occasional that when you are in financial difficulty and do not have enough asset to give as security to bank or you may not be happy with the interest charge that a bank levy on credit amount. Following the formal and rigid procedures is also a daunting task. Making bank or credit union happy over the credit terms is not very easy also. Due to many other reasons you feel reluctant to choose a bank for lending any amount. In such circumstances, most comfortable way is to ask your closed ones to give a financial support and provide you an amount when and where required. A friend in need is a friend indeed and many of persons do not like to say no to their loved ones even they have to pay some cost for giving the credit without getting any guarantee that borrower will pay the whole sum back on time. Either he will pay or he will be on time.
Trust is more important than precautions when matter comes about dealing a loan issue with family member or close friend. You have to happily agree on the borrower wish to repay the money when he or she is able to pay it back. It might be repaid in the form of unusual installments. Also the loss of time value of money granted as loan will never be recovered as there is no interest payment charged on the principal amount. Lets suppose you are lending $5000 in 2014 to a friend who will be repaying it in indefinite period of time. What if he is able to repay this amount within next 5 years. The amount $5000 after 5 years will not have the same financial value as today, it will definitely be less than $5000 because of inflation. If you are planning to have this money back in future and buy some property for you, you should have this idea in mind that in future you need to have more than $5000 to buy it. But the borrower will give you what he has borrowed from you 5 years back, this inflation and reduced time value of money is certainly your headache not his concern.
So should we deny a very good friend if we think upon the negative consequences of lending? Certainly, none of us is ready for this. Why do not we think upon going ahead for some written elements or taking help from a financial adviser as how to keep friend happy and also protect you from getting a risk of financial loss on your nerves.
In case he or she is lending for a business propositions, smartly ask about the projected profits. If you are able to see positive cash flows earning on regular basis through this business, you can offer him to be your buddy in this business and your amount should be treated as capital with an agreement of percentage of profit given at the end.
You might also ask him to repay the amount in form of financial commodity like shares ,vehicle or any land as part of repayment. This needs a strong persuasive and admiring way to convince the borrower by fulfilling his or her financial demand on time. But this would definitely benefit you even you give your money without interest increment and also reward you for hanging yourself for a considerable period of time to get this amount back.