Highlights
- There are four criteria to look at when lending someone money.
- Take emotions out of the debt. Be professional and draft a contract.
- Don't jeopardise your own family's well-being when lending.
'May PERAan' is SBS Filipino's new podcast series which features financial experts seeking to answer the most common questions about money and finances.
"The worst case scenario of lending money is not being repaid. There's always that risk of ruining a relationship when you lend money to someone related or close to you. It's awkward when money is involved."
Financial expert Jerry O'Brien shares what you need to do to avoid the worst case scenario and to hopefully keep the relationship you have.
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Paano nga ba maningil ng utang?
SBS Filipino
19/10/202111:30
Criteria in lending money
According to Jerry, there are four things you need to look at before lending money:
1. The trustworthiness of the borrower and how long you've known each other
2. The history of the borrower, i.e., how many times has he borrowed money in the past and how capable is he of repaying
3. The scenario, i.e., how will a person's life change if you help out
4. The effect on you, i.e., how much of a hit will you take if you lend money
Draft a formal contract
In order to take the awkwardness out of the situation, Jerry suggests to take emotions out of it and draft a formal contract.
"This isn't a common practice amongst Filipinos. Oftentimes, we do it verbally. I've learned that a formal contract benefits both parties."
He shares that it's important to include the amount being lent, collateral and the timeframe for repayments.
"Typically, anything more than 12 months is not advisable because collecting becomes more difficult.
"If repayments aren't given within the timeframe, ask that an interest be given as a form of compensation. Discuss with the borrower how much interest both of you are comfortable with.
"Make sure you have an open, transparent conversation."
The 'whatever' funds
Jerry shares that he and his family have a "whatever funds", laughing "It's a practical term because we use it for 'whatever'. This where we get the money we can lend out."
He shares that restricting the source assures you that you set a limit on the amount you lend out.
"Don't go beyond that and jeopardise your own family's well-being. It's ok to help but, make sure you help yourself first.
"If you really arent capable of helping, dont force it. If you can avoid it, don't lend money; but if you can't draft a contract."
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Disclaimer: This article is for general information only. For specific financial advice, you should consider seeking independent legal, financial, taxation or other advice to check how the information here relates to your unique circumstances.
