Lend or borrow money FAQs
Most financial advisors will tell you not to lend money to friends and family; however, if you feel the need to help your friends and family, you should make sure you protect yourself the best you can. First, never loan money you cannot afford to lose. Second, start by making a Loan Agreement that both you and your family member sign willingly.
Why not? Especially if the loan amount is over the tax-free limit amount of $14,000. The IRS may, on larger loans (or "gifts"), charge taxes for the interest you could have collected on the loan. So, you may as well charge interest. Charging interest also shows the borrower that you are taking the loan agreement seriously. Our Loan Agreements include the option to charge interest and can create an amortization table for you.
How much you decide to charge in interest is up to you. Most financial advisors recommend five to ten percent. In many states, you may not be able to charge what might be considered excessive interest. High interest rates may be considered predatory and bad for the consumer, even in regards to personal loans. If you want to charge more than ten percent, make sure your state laws do not prohibit it first.
If you can avoid borrowing money in the first place, you are better off in the long run. But if you need to borrow money, you should seek the best possible terms.