- dollars image by Alexey Klementiev from Fotolia.com Have a contract that covers everything when making a hard money loan. When you have money to lend people, there are some common mistakes you need to avoid making. Keep in mind many factors when deciding if you can loan someone the money he needs. Ask questions and do not be afraid to say no if you decide it is not feasible.
Not Being Suspicious
- When you are lending money to someone, especially if it is a large amount of money, be suspicious. Ask her why she needs the money and what she is using it for. You are the one lending the money, so you have a right to know what is being done with it. Also, ask why she can not get a loan from a bank or other loan agency.
Lending To Family
- Be leery when lending to family or friends. Money can sometimes come between people’s relationships. Collecting loans from family are often the hardest loans to collect, according to finance specialist Jackie Martin. Decide if you can afford to get paid back a little slower, or to not get paid back at all. This may happen.
Contracts
- Due to the familiarity people tend to have with people they are lending money to, contracts sometimes do not happen. Be sure to make a contract no matter how well you know the person. This way you have a legal and binding document should anything happen.
Lending Too Much
- Do not lend more than you can afford to. Some people may ask for one or two thousand more than you can really lend them, and you may feel that the loss is quickly recoverable. However, if that was the rest of your spare money, and something happens, like a car accident, then you will not have the extra money anymore.
Overlooking Risks
- If you are loaning the money to someone as a business loan, do not overlook that the business may fail. If this happens, it can delay when the loan will be repaid. There is also the chance a failed business could go bankrupt and you will never get repaid.
Ignoring Signs
- Do not ignore the signs that this is anything other than a business deal. People who you are close to may think that a simple handshake is sufficient for getting the loan. This is not the case. Never accept someone’s word as a deal sealer. The fact that they think that is okay should tip you off that they do not see this as a serious business deal, and therefore, paying you back may not be a serious matter to him either.
Not Charging Interest
- Make sure to charge interest. You are doing the person a favor by lending the money, so you should get paid back for this. Find out what typical interest rates would be on a loan for the person and charge interest accordingly.
Not Making a Payment Schedule
- Make a payment schedule so that the borrower knows how much to pay you and when. Do not just leave it up the person’s discretion to pay you what she can when she can. Expect payments on the date that you set up each month.
Do Not Deplete Savings
- No matter how bad the person needs the loan or how much you believe in the business venture, it is not worth depleting your savings. These should only be used in very extreme situations, and not to help out others with loans. Definitely do not tap into your IRA and 401k because if you do not get the loan back, you will have lost all your retirement money.
Not Planning Ahead
- Make sure to think about things in the future when you might need that money. For example, you may be able to lend someone $10,000 right now, but in a few years when your kids are going to college, you may not be able to pay as much of their tuition. Keep the future in mind at all times.
Similar Posts:
Tags: Hard Money,
Money
