Don’t Let a Loan Ruin Your Relationship

Now that banks have tightened their lending standards, it is more difficult –– even for those with strong credit histories –– to borrow money. Many people are turning to friends and family to borrow funds. The Oklahoma Society of Certified Public Accountants advises consumers to take some smart steps to prevent a loan from damaging a good relationship.

Consider alternatives.
Borrowers who fail to repay bank loans may face legal problems, but those who don’t make good on loans to friends or family can be hit not only with legal trouble but also the loss of a personal relationship. That’s why it’s a good idea to think about all options before approaching someone for a loan. Consider trying more than one bank, for example, or explore borrowing possibilities at credit unions or other sources. It may also be possible to cut back on spending instead of taking a loan or to postpone plans for a big purchase until you can save the money needed.

Get everything in writing.
One of the potential pitfalls of a loan between friends or family is the informality. A handshake is a popular way to cement a deal, but a written document is a better idea for both sides. That’s because problems can arise when the friend lending the money expects it to be returned within a short time, while the borrower believes he or she can pay it back over an indefinite period. When lending money to a loved one, it’s often hard to insist on knowing when the loan will be paid or to ask for regular payments. To protect the relationship and your wallet, it’s best to put everything in writing. Write down the amount of the loan, when and how it will be paid off and if the borrower will pay any interest. This kind of promissory note clarifies the borrower’s responsibilities and can help prevent misunderstandings later. The note should be signed by both the borrower and lender and each should keep a copy.

Have realistic expectations.
While written documentation is a great idea, remember that it will not prevent potential payment problems. That’s why it’s important for both people to be realistic before they enter into the deal. If you know that a loved one likely won’t be able to repay, for example, offer to help him or her solve problems by developing a monthly budget or working out a payment plan with creditors. If you are uncertain you will be able to repay a loan, consider asking loved ones to brainstorm other borrowing options. Doing so may preserve the relationship so that it is still in force long after any money problems are over.

Be honest.
If you borrow money from a friend or family member and find that you are unable to repay it as expected, let them know about the problem right away. Explain what went wrong and when you think you’ll be able to make good. It may be a difficult conversation, but candor and consideration for the other person will go a long way in helping to preserve the relationship.

If you would like additional information about financial topics like getting out of debt, reducing taxable income, repairing a credit score and more, don’t miss the seventh annual “Do It Herself: A Journey to Financial Freedom,” the ultimate one-day financial makeover for only $15. The conference will be on Friday, Sept 11, at the Downtown Doubletree Hotel in Tulsa, and on Friday, Oct. 9, at the Clarion Meridian Hotel in Oklahoma City. for additional information and to register, or call (800) 522-8261, ext. 3829.

With more than 6,600 members in public practice, industry, government and education, the OSCPA is Oklahoma’s only statewide professional association of s. Since 1918, the organization has continued to provide professional education, conduct quality reviews and promote and maintain high standards of integrity and competence within the accounting profession. Visit for more financial tips and a free referral and free consultation.

Updated 08-24-2009

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