What You Need to Know About Lending Money

You loan a neighbor a tool, but it's never returned. You loan a friend another tool, but it's returned broken. You loan a coworker a few bucks for lunch, but she forgets to pay you back. You cosign for your son's new car loan, but when the car is repossessed your credit is on the rocks. You loan a relative a few hundred bucks to repair one of his widgets, but he makes no attempt to return the money. These are all ugly scenarios that plague people everywhere. When you have money and other assets, take it to the bank somebody somewhere is going to want to borrow from you. So, what can you do to keep from looking like a stingy jerk to your friends and relatives while keeping your cash?

1. Run out of money yourself and "borrow back." This will work for the coworker who forgets to return the lunch money. Think of saying something like this, "Hey Joe, remember last week when I loaned you lunch money? Well, I forgot my wallet today and was wondering if I could borrow it back." Most of the time people have simply forgotten a small loan and not intended to bilk you out of your money. This way you keep the person on friendly terms and you get your money back.

2. When you loan out your tools and a neighbor or friend forgets to return them, simply ask. "Hey Joe, can I get that shovel back from you? I'm going to need it." If your tools are returned in poor health, and there has been no offer to replace them or pay for repairs, never ever loan that individual anything else. In this case, just say no. You don't need friends, or even just friendly acquaintances like this. Think dead beat loser.

3. Loaning money to relatives other than your kids can pose a problem in that it might be important to you to keep peace in the family. You don't want Uncle Joe to get mad at you for pressing cousin Harry for the money he owes you. My suggestion is to treat relatives the same way you treat friends. neighbors, and coworkers. If a relative wants to borrow a larger sum of money, here's what I do. I tell them we need to set up a contract for repayment. The reason being, if something were to happen to me or my relative, there is documentation of the loan so the heirs know what we agreed to. If I don't think my relative is responsible, I simply tell him I don't have the money available for him and wish him loads of luck in finding it elsewhere.

4. Kids are a problem. Somewhere, back in their little psyches exists a voice telling them that you're just a parent and somehow it's okay to make you last on their payback list. After all, what loving mother or dad is going to repo their car or foreclose on their mortgage. They also tend to believe that the national bank of parent is the best place in the world to borrow money. It's the only bank that doesn't require a credit check. It's been my experience that moms are particularly vulnerable softies when it comes to their kids even if the kid is 40, unemployed, and sitting on his or her fat butt all day.

The cure for kids starts when they're young. If you loan your kid 50-cents for something, demand the money back. Teach them the difference between a loan and a gift. If you don't, they might end up a dead beat loser who never pays a personal loan and feels no responsibility to return borrowed items in as good or better shape than when they were borrowed. My mother drilled that into me as a kid and always insisted I repay money I borrowed from her. It was a lesson I have carried with me my entire life. If I borrow a cup of sugar, I return a 5-pound bag. If I break a borrowed tool, no matter how rickety it was when I borrowed it, if it breaks, the lender gets a new tool. Needless to say it is rare I borrow anything.

If you've let things slide and it's too late to teach your kids those important early lessons, be blunt. Think of the following conversation. "Hey, I loaned you that money and I need to know when you plan on paying it back," dad says. "As soon as I can, Dad, but I'm broke," adult kid says. So what do you do now? Garnish his or her wages? We know you're not going to do that, nor are you going to demand your money ahead of a mortgage or utility payment.

Now it's time for the tough love part of being a parent. Say something like, "Son, I know you're short on cash because you bought all that crap on credit and you're buried, so how about doing some work for me and I'll call it square?" This is for loans under a few hundred dollars. For larger loans, suggest a payment plan. If the kid agrees to that, make sure you get your payment on the date you both agreed to.

If all your efforts fail, don't loan the kid another thing. He or she has become a deadbeat loser. I know that sounds harsh, but you are now paying the price for not teaching the kid better when you were raising him or her.

If your adult kid is basically honest, but thinks of you as an endless fountain of cash, you can cosign for a loan with a bank. The kid is then paying the bank back and not you. It'll cost more for the kid, but there's a different mentality that goes with owing a bank versus owing mom. Before you go this route though, you must be certain the kid is in the habit of paying his or her bills, otherwise you can end up stuck with the loan and or having your credit ruined.

5. Don't loan people or other people's stuff. Never ever loan out someone else's stuff. If you're a wife, don't loan out your husband's stuff, if you're a husband, don't loan out your wife's stuff. If you're a kid, don't loan out your parents' or sibling's stuff. In addition, don't loan out the other person, even if it's your kid. In other words, don't volunteer your husband, wife, or kid to do favors for other people unless you have discussed it with that person first. I know a gal who is notorious for loaning out her husband. "Oh John would be happy to help you move." Or "John will help you dig that trench as soon as he gets home from work." Never, ever, ever, ever do that. This woman should let John decide what he wants to do with his most valuable asset. His time.