Would you relate if I say that it is common practice that families run to relatives who work or are based abroad whenever they need to borrow money? Have you found yourself in a dilemma on deciding whether to lend them money or not? Do you fear that if ever you choose to lend money, you might not get paid?
So, you ask yourself, if ever you lend, will the borrower pay the whole amount and on time on the due date you both agreed? Are you concerned about what will happen to the hard-earned money that you have patiently saved for a long time? These are just common questions that bug us when family friends ask to borrow our extra cash.
It is common among Filipinos to borrow money from relatives abroad. And for relationship’s sake, we lend money to them. While it is okay to lend money to those who are really in dire or in times of emergency, you need to consider your decision carefully before lending because your fears of not getting paid are valid. According to research, 21% of adults who lent money resulted in damaged relationships. Hence, it pays to have in mind that debts can either make or break relationships, either with friends or family.
But friends are friends and so with family. They are part of our lives, and we value them. So, you probably ask yourself how to deal with situations like these and control them? Check these tips that will give you control over the situation.
1. Keep Financial Matters to yourself
Once people know that you have emergency funds, they tend to get the wrong signal, and they think it is okay to borrow from you. People even feel less bothered if they can’t pay because they perceive that you have plenty of reserve in the bank. So better keep financial details to yourself.
2. Say No
Know their purpose of borrowing money. Say no if the purpose of borrowing is intended for wants and not needs. If you knew beforehand about the person’s troubled history of paying debts or doubt the person’s ability to pay debts, be honest, and state your reasons briefly without elaborating lengthily. Justify your decision with a brief statement such as, “I am not in the situation to lend money.” This action sounds safe to let the friend or family understand your stand about the matter.
3. Offer help
Offer other forms of help to your friend or family. For example, refer to job opportunities, or guide them to join free skills training. Help them update their resume or provide a few groceries for their immediate needs, etc. These help a lot no matter how small your help that addresses part of their present predicament. By doing this, your friend or family will feel that they can count on you even if not in terms of money.
4. Lend a smaller amount
In my experience, I offer smaller amounts that I don’t mind getting paid in return. For example, my friend or family badly needs cash, and I do not have the amount or have other prior plans for the reserved money, I usually offer smaller amounts. This way, you can help and save relationships as well.
5. Be Selective
There is a pearl of old wisdom on choosing who to lend your money to. You do not lend money to someone who runs out of money for their monthly bills but can afford to buy other unimportant things, like shopping or vacation. Most likely, borrowers who are like this are deadbeats too.
6. Avoid herculean acts
Do not volunteer to offer as a loan guarantor or loan borrower on his/her behalf just because your friend or family member can no longer have additional loans due to availed multiple loans in the past. Co-guarantor and loan borrowers can bear the same responsibilities. It means you are equally liable to the borrower’s financial obligations as well. So if you decide to be a guarantor, be prepared for this scenario. What is worse is if you volunteer to make a loan under your name and offer it to your friend or family. It is a very risky decision.
7. Do not give more
Apart from doing the herculean act, do not lend more than what you can afford, period! Bear in mind that you do not know when you will need your reserved cash! So, no matter how sweet is the payment assurance of your friend or family, still, hold on to your senses and don’t give away your hard-earned money. Remember the sacrifices you made to save that money. Lending it should not ruin your financial security
8. Accept offered collateral
It may sound so selfish. But when someone asks to borrow money with an offer of “something” with monetary value as collateral, consider this an act of the borrower to show sincerity to pay the loan. It can be an indication too that this person deserves your consideration. You have to think, of course, if the worth of collateral corresponds to the value they intend to borrow and evaluate further the situations. Otherwise, you’ll get abused.
9. Contract agreement
Filipinos don’t practice asking our close family members to sign a contract agreement when they borrow money from us! So think well how you will go about it. Maybe rule # 2,3,4 and 7 may help you aid your decision. But if they offer a contract, why not? But, in instances that a friend or family borrows money to invest in a business, it is safe to discuss interest and contract. And you may offer lower rates compared to other financial institutions. So, here, you are both satisfied. You will also have another passive source of income.
10. Keep Record
Record the payment you receive and give a note of the running balance for the money you loaned. No matter how trivial you do this part, what is essential is both of you know what the real score of the payables is and what has been paid. It may sound silly because we trust our friend or family member, but this will undoubtedly save both of you when your good memory fails.
Rules that OFWs Must Follow When Lending Money to Family and Friends
Apart from these tips, it is wise to remember that these friends and family members who ran to you and asked to borrow money usually no longer have other options. You are their last resort. So, better use your head over your heart on this matter.
Our relationships with the borrowers are most often the hindrance to set logical reasoning in lending money. But no matter what, the rule of thumb is always this: “Do not lend what you can’t afford losing.”
Unfortunately, lending money to friends and family can have unwanted consequences. It can turn a sweet relationship into a sour one. To some who are more fortunate, it fosters closer bonds in relationships.