6 Things to Consider While Lending Cash to Your Family or Friends

When difficult times fall upon you, an individual may consider borrowing from close members to forgo complicated application & approval processes of banks & other financial institutions.

This is quite liked by prospective borrowers who do not have all the documents ready to especially have approvals in place to qualify for loan approvals from banks.

However, you need to be careful of certain things when you consider lending money to a family member or a friend.

Following Points to consider while lending cash to your family or friends:

Below things are needed to be kept in mind to experience positive vibes while borrowing. This will potentially help to remove hindrances from lending & availing.

1. Relatives mistake it for a personal favor

At times, friends and family treat your borrowing as a personal gift or treat it differently. They may believe it to be a favor upon them and that’s there’s absolutely no need to repay.

Therefore, it’s important to convey that the money needs to be returned and within the specified frame of time. Just clarify that this isn’t a gift but a borrowing.

2. Do you have an alternative to borrowing from friends or family?

They always say do not mess with family/friends financially. Somewhere, it can backfire your blooming relationship. If you’re not sure about whether it’s a good idea to borrow from known, then work out other ways. In fact, an alternative could be to have a co-signing a loan agreement signed by a family member. This basically means that if you aren’t able to procure money from family/friends, try funds from other sources. Personal Loan by Home Credit is unsecured without the need for a guarantor. You can get an instant personal loan up to Rs. 2,00,000 in easy EMIs.

3. Can your loan transaction be turned safe?

What consequences will you have to face to ensure that borrowing a sum will be safe & sound? This is besides the fact that the individual had good intentions to make payments in time. It could be a business venture which failed to turn out profitable. It’s best to back it up with collateral security. Whenever the money is not paid up, the collateral asset can be seized. While this might seem harsh, it can be very beneficial during the worst-case scenarios.

Especially when you give out money for a high-value product, it’s better to keep safe.

Read More: Personal Loan Guidebook: All Questions & Answers

4. Learn about the legalities in full

Grab information about the transaction well, if the weighty. Talk to your legal counsel and get a clear picture of the transactional value. Get to understand the legal consequences of a monetary transaction.

Especially if the family member or friend has diversified its income into commercial purposes. If after preparing all this, you feel secure about the transaction, then go for it.

5. How is your taxation impacted by family borrowing?

In addition to legal consequences, take care of the taxation side also when loans are taken from family members & friends. Just note that there shouldn’t be any tax implications of gifts or in-kind presents.

A loan given out to a friend will not be admitted as taxable income, however, any interest charged on the top of it will be separately charged to tax.

6. Is your money tax-free taken from family members?

Currently, nothing is charged as taxes on individuals who lend money to family/friends, regardless of whether they charge interest on it or not.

The Gift Tax permits the transfer of gifts up to Rs. 50, 000, without any taxes.