Tips for Loaning Money to Others on Credit

If you have access to money and you have loved ones in your life then there may come a time when one of your loved ones will ask you to loan some money to him or her. If this is money that you will have to take off of a credit card through a purchase, balance transfer or cash advance then you may find yourself wondering whether or not you should go ahead and risk the financial trouble of the loan just to help out the person that you love. There are definite risks involved when borrowing money off of credit cards for any reason so it’s certainly something that you want to think twice about.

Here are some tips and things to take into consideration before using a credit card to loan money to loved ones:

•Review the terms of the credit card before making any decisions. You should never borrow money from your credit cards if the interest rate is going to be exorbitant, excessive fees are going to be applied to the transaction or you run the risk of overextending your credit limit when you take out the loan. Make sure that your credit balance and limit is in a good position for borrowing money before you even think about making a loan like this.

• Assume that the person who is borrowing the money from you is not going to be able to pay it back. You want to believe that this person is going to re-pay you but frankly there is probably a reason they’re in a financial bind and it indicates that they may have trouble with repayment despite their best intentions. Make a plan about how you will repay the entire loan yourself if need be. After all, it’s your credit that you have to worry about.

• Discuss the details of the loan with your loved one. Ask yourself honestly whether you think lending the money to this person is the right thing to do. Will the individual use it in a way that is going to truly benefit him or her or is the money just going to make this person’s problems worse? You aren’t going to feel good about the loan if it enables your loved one to worsen his or her life.

• Put the details of the loan in writing. This isn’t a very comfortable part of the situation but it makes the terms of the loan clearer. You can use the document later if you need to take your loved one to small claims court to get the money paid back. Even if you don’t, it’s going to encourage your loved one to take this loan seriously so that repayment of the loan is going to be more likely.

In most cases, you probably shouldn’t make this type of loan to someone. It’s usually a bad idea to borrow money from your credit cards even for your own needs so you definitely should think twice about doing it to help someone that you love. However, there might be times when this is the right thing to do for someone that you care about.  Just make sure that you’ve thought through it carefully and made plans for repayment in the event that you yourself don’t get paid back for the loan.

This entry was posted on Wednesday, September 24th, 2008 at 12:51 pm and is filed under Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.