Photo: Marc Royce
We would all love to be able to help a friend or relative in a financial fix, but there's a lot to consider before handing over a check. You should give only money you don't need, because there's a good chance it will never be returned. But if you do decide to take that risk, here's what to ask yourself before lending a single penny:
Is this person coming to you for a bailout because every credit card, financing company, and bank turned her down? If you're the last resort, be wary.
Are you helping out your daughter who's raising kids on her own and was recently blindsided by medical bills—or are you bankrolling your daughter who's having trouble making the payments on her BMW? Think twice before supporting an indulgence.
What if I never see this money again?
Don't you dare tap your own emergency savings to pay for someone else's crisis. If something happens to you and you haven't been repaid, then you'll be the one having to ask for help.
What terms am I being offered?
When someone asks for money but doesn't mention how she intends to repay you, that's a problem. If she respects you, her initial request should come with the proposal of signing a written document, called a promissory note, in which she outlines the agreement. She must commit to a schedule for when repayment begins, the interest rate, how often she'll make installments, and the penalty for lateness. (It's also a good idea to get the document notarized. If you wind up in a dispute, you would have an easier time proving the claim is valid.) Sound a bit businesslike? It should. You're loaning money, not a cup of sugar. To keep things as sweet as possible, put everything in writing.