According to a recent survey by the American Consumer Credit Counseling, 82% of all American respondents would loan money to a relative in need. An astounding 92% of young American respondents (aged 18-34) declared they would do the same.
Why such a high number?
President and CEO of ACCC, Steve Trumble, says this generous statistic is the result of tough economic times. More Americans are now turning to family for loans in order to avoid defaulting on bank payments.
The top reasons for lending included emergencies, such as the death of a family member, natural disaster or medical bills. Others said they would still help out just to pay for ordinary expenses, such as rent or groceries.
Quick Loan Statistics
• Consumer and student loans in the United States have surpassed the trillion dollar mark
• Approximately $89 billion dollars in loan transactions occur between friends and relatives each year in the United States.
• 32% of respondents in the survey concluded they would still loan money if they knew they might not get paid back.
How to Protect Yourself When Lending Money
While borrowing money from a relative may take stress off the recipient, it can put financial strain on the lender.
Here are some ways to protect yourself if you plan to make a loan:
• Create a promissory note to outline the conditions of your personal loan. This legal document will help enforce your relative’s promise to pay you back and sets out a payment plan for them to do so. You can customize your note to include interest or collateral security.
• Lend within your means. Everyone needs to survive. If you cannot afford to lend money, don’t. Or only lend what you can spare without the risk of suffering your own financial distress.
• Consult your family. Before making any important financial decisions, talk to your spouse or partner about lending, especially if the loan is coming out of a shared account. He or she can help you work through the pros and cons of loaning money, including how it will affect your family’s current financial status.
• Consider other options. Find other ways to help your family member, such as taking them grocery shopping or researching financial relief options. Lending time and support is the greatest investment you can make and is more meaningful than simply writing a check.
Your Money, Your Decision
Loaning money to a family member requires patience and flexibility, as well as a realistic and caring perspective on the part of the lender. Sometimes money can burden relationships. If you hold resentment towards this person already, it may not be worth it to further hinder your relationship with a cash loan.
Whatever you decide, be clear about your expectations. Should you choose not to loan, be honest about your reasons. Hopefully your family member will respect your decision. If you do agree to lend them money, create a promissory note with a structured payment plan so they can pay you back over time.
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