The rules of giving a loan

Image courtesy:Flickr

If the following situation sounds similar to you then this article is designed for you. You are decent human being and you know the value of money. And that is precisely why you spend your money very carefully. You keep tabs of how much you can save every month to buy the things that you want to later on.

But even when you do manage to save decent amount of money by the end of the month, it still is never enough to fulfill your needs. And the reason for that is the fact that you are generous enough to giving a loan to people when in need. It might be that friend of yours who spends too much money on partying, so much so that he/she does not even have enough money at the end of the month to eat. It might be that cousin of yours who has been promising to return your money as soon as his/her millionaire idea pays off.

And we all know that none of them are ever going to return your money. So what should you do? Here are all the rules that you should adhere to if you want to keep loaning your money and yet want it back some day.

  1. Planning the loan budget 

    Image courtesy:PxHere
    Image courtesy:PxHere

The first thing that you need to do is, add another column in your monthly expenditure plan. This column will be about all the money that you are ready to invest in things and or giving a loan to your friends and anyone who asks for it. This plan will ensure that you don’t have to use your savings for giving loans and at the end of the day; you are not the one who ends up broke. So, planning a special budget for the sake of giving loans is a smart idea.

  1. Understand good v/s bad investment

This is the most important rule of giving loans in life. You need to understand that not all loans are good bets. You may be a generous person, but the people who are going to ask you for a loan, might not be so generous after all. You need to be able to judge them on the basis of their characteristic and keep your personal relations with them completely separate from this loan transaction. And you need to realize what a good investment is.

Image courtesy:eFinancialCareers
Image courtesy:eFinancialCareers

Look at their past history of taking and returning loans, their behavior, if they are selfish and cunning in their general lives or not and especially stay away from the people who are mere dreamers and not planners. That cousin who has that millionaire idea? Yeah, do not give him any money unless he gives you a detailed proposal about how is going to achieve his goal (It will benefit both you and him).

  1. Make your position clear

After you have selected how much you are ready to give up for loan and to whom, you now have to be clear about your position. For a lot of people, giving a loan is sort of like free money just because the lender did not make his/her position clear. You have to make him/her understand that this is a loan and you very much intend to take this money back. And if you can, add your own limit to how long you intend to keep waiting for a loan. Having a deadline actually motivates the debtor to repay their loans faster. 

  1. Be strict 

    Image courtesy:Pixabay
    Image courtesy:Pixabay

This is something that you might struggle with if you are too generous towards people and have a lagging attitude towards them. You have to be strict about getting your money back and might also have to give reminders from time to time about the money you owe to the person. Make sure that they do not forget it. But yes, you have to be very subtle about it or they might think you are a cheapskate.

We hope these rules can help you understand all aspects of giving a loan smartly.