Lending friends money is an experience anyone can relate to and while it's a gesture that's done out of sympathy and goodwill, it has ruined friendships for some. You might as well avoid granting friends a loan to ensure that nothing messes your relationship. However, when a friend is in deep need, it's natural to want to reach out and help.
If do decide to extend a loan to a friend, make sure it's done right so your relationship doesn't turn sour. Here are some suggestions on how to go about it properly.
1) Have everything done in writing. On the "contract," you must state all the conditions and terms of the loan, including detailing missed payments. You and your friend should both talk over, decide and agree to these terms. This way, it will be clear to both parties that it's something you've settled on. You don't need a lawyer to do this, but the agreement should be signed and dated by both parties. Download draft loan agreements for ideas from Law Depot or Tidy Forms.
2) Insist on honesty and openness. If your friend might miss a payment, you should be informed about it. Being clear about this does away with expectations and you won't feel bad about having to remind the other person that it's time to pay. The communication lines should be open so that any problems can be settled without any untoward encounters with your friend, per Time.
3) Impose penalties if payment are missed. This way, your friend will take the loan seriously and take responsibility for payments, according to Money Crashers.
4) If it's a large sum in question, you could both agree to have collateral in exchange for the money lent. For example, your friend's TV set, laptop, game console or guitar collection could serve as the collateral, and should he fail to make a payment, you can claim ownership of these items.
5) You could consider the loan as a gift and do away with all the trouble of asking for payment. If you're not in need of the money and you can spare parting with it, it's the best gesture of goodwill you can extend to a friend.
