Neither a borrower nor a lender be

Recently I have lent money to friends and family to cover essential bills. And according to a study done by O2, I’m not alone.

More than £2.6 billion was paid out in casual loans to family and friends last year. Mixing family and friends with money can turn sour. Sure, helping out your nearest and dearest by lending them money when they’re in a financial mess is a natural thing to do, and I’m not advocating that you should stop.

What I am saying is to be careful. Lay down the ground rules.

Both parties should lay down some ground rules before borrowing or lending money. For instance, how much is the loan, how much should be repaid, and when should it be repaid? Write this down so there are no ‘he said, she said’ arguments later on. Make sure you also discuss a contingency plan. What would happen if the borrower lost their job, or became ill? What about if the lender needs the money back more quickly than first thought? Discuss what would happen in these situations.

If the loan is for a large amount of money, consider lending on a more formal basis. Write down the agreements on the loan and then both parties can go to a solicitor who will witness the signing of a document.

Try using the new website Payumi if it’s a small amount you’re lending, which will remind friends of the dates to repay and let them pay with a debit card, credit card or PayPal.

If you need to borrow money, there are other ways to try first if you’re determined not to borrow from family members and friends, or if you want to avoid there being any possibility of fallout.

If it’s a small business loan you require, try a peer – to – peer lender. These lenders help borrowers get decent rates and more flexible terms than high street lenders.

Credit Unions are run as co-operatives – by the members for the members. They will also provide loans, although you may have to be a member for a certain amount of time before a loan is available.

High street loans are still worth considering now that interest rates have fallen so dramatically. I appreciate this is not an option if you don’t have a high credit rating though.

Lend to your family and friends and help them out by all means – but do it carefully.