Sometimes, in these situations, « the borrower » is really looking for a gift and doesn`t really intend to repay. It may not even be a conscious decision on their part, but it is important to be aware of it. You might even decide that you want to make a gift (perhaps a smaller amount) avoid the bad feelings and potential complications associated with a loan – but both parties should be aware of the decision to make a gift and why. Whether or not a loan guarantee is required depends on the circumstances and the amount of the loan. In general, I recommend that a lender always have security for the loan (and most it`s better) when lending to family or friends. Then you should think about whether the borrower can afford the credit. Will they be able to pay it back within a period of time that you are satisfied with? No interest rate is set if the total loans are less than $10,000. Between $10,000 and $100,000, the amount charged is limited to your net investment income, such as interest, dividends and, in some cases, capital gains. To determine the interest rate of these transactions, the IRS uses the so-called federal interest rate, which varies monthly. Remember that if you don`t put all the details of the loan in writing, it will be very difficult for you to deduct the interest you pay. In addition, the parent who borrowed the money cannot collect a tax deduction on the loss if you find that you cannot repay.
You don`t want to lose a good friend or lose money with a family member. You need to consider the person you are asking for and their situation before you start asking. If your family member or friend has recently experienced some form of emotional damage or financial instability, you should not contact them at this point to get a loan, no matter how close your relationship is. You want the person you are asking to have a steady regular job and be someone who is financially stable in their life. Think carefully about the consequences for your personal relationship with the borrower. Of course, it also has an impact on the loan refusal, but at the end of the day, it`s your money and your decision.