A deep recession is causing a lot of financial challenges for many families. This can cause those seeking funds to ask family and friends for loans. Is that a good idea? Sharon Ko interviewed Karl Eggerss to discuss some of the pitfalls of lending money.
Sharon Ko: The Coronavirus Crisis is taking a toll on people’s health and their wallets. One of the fastest ways to get cash to foot a bill is to ask family or friends. Now if you’re on the other side of that request, is it a good idea to lend money? Check this out. In one survey with adults who could choose more than one answer, more than a third who lended help lost it, damaged their credit score, or their relationship with that person was harmed.
Karl Eggerss: I have seen many relationships in families broken up because of money. It enables somebody to continue to ask for money. And once you lend them money, they know you’re willing to do it. They’re probably going to come back and ask for more, and more, and more. And it’s hard to say, “No.”
Sharon Ko: If you’re weighing your options, what about a loan agreement?
Karl Eggerss: You could do a contractual relationship. Although for a small amount of money, it’s generally not worth it, and if they don’t have the money to pay you back there’s nothing that you can really do. I would get creative and say, “What are you using this money for?” And maybe help them. Let’s say, it’s for fixing a car up. Maybe you could lend them your car temporarily to get them to work.
Sharon Ko: Financial advisor Karl Eggerss says, “If there are no other options but to lend money, write it to a zero immediately.”
Karl Eggerss: Assume it’s a gift, right? Do not assume you’re going to get paid back. If you can mentally get there, then if they don’t pay you back you’re okay.