Personal Loans: How Much Beneficial, How Much Risky

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As the name suggests, a personal loan is given by a friend or family member without any kind of professional guidelines or agreement most of the times. However, this is exactly where such a loan differs from the official loans from a bank, which has procedural guidelines to be followed. Therefore, it seems that personal loans are not as secure as bank loans. However, this is only true when you do not consider making a legal agreement and give a sum just out of love. 

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Most of the times, family and friends willing to act as lenders do not evaluate their own financial conditions. Today’s economic conditions are such that many people are not that flexible enough to part their money assuming that all will be lost finally. Moreover, if you are offering loans to your beloved ones at a low or no interest rate, know that you are hurting your own funds by subsidizing theirs. Therefore, it is better that they take loans from a bank or credit union. This will at least make them responsible to improve their credit scores. Further, with the soaring interest rates, their irresponsible tendency of asking of loans will automatically vanish. 

However, that is just an alternative. It does not mean that giving personal loans is bad or riskier. You can prove this by lending personally without burdening your finances as well as making them responsible. 

Ask Them, Talk with Them: 

Before you say yes, get to know the intention behind taking a personal loan so that you can justify their borrowing. Therefore, talk to them and find out the reason for which they need money. If the purpose is critical such as paying medical bills or car repair, then it is just fine to lend. However, if the purpose is vacationing or attending a casino bar, you can truly deny. Then, you need to ask about the time that they will take to repay the loan. In case loan is more in amount that can take over a month’s time to pay off, it is wise to prepare an agreement and take the borrower’s sign. Lastly, do ask about the current financial condition of the borrower so that you can judge the probability of getting the money back. Remember, you are lending them, not gifting them; so, it makes sense to think like an official or legal lender because you certainly do not want to lose your money forever.


Give Importance to Terms: 

In today’s time, verbal contracts have lost their significance, as people have lost their honesty. As a result, a lender good at heart simply suffers due to late repayments. Sometimes, the money is not repaid at all. This happens because of lack of writing agreement between the two parties. Signing a contract even for the small amounts will bring an end to this despair because you legally bind the borrower with an agreed set of terms and conditions. Further, it also breaks the bad habit of people coming to you quite often for loans. 

It is advisable that both parties work together and agree upon the terms before signing. Ideally, the agreement should include the interest rate, repayment schedule, and conditions in case of unexpected or unforeseen events. Moreover, ask a professional such as a lawyer to verify the agreement. In this way, personal loans can be made risk-free. 

Author: Lin Ezeanu is a freelance writer who loves to write on topics related to finance, business, health, and home improvements. Right now, she is writing on topics related to loans. She recently researched on an online licensed moneylenders address.

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