How to give loans wisely to friends and earn profits

Many people find them selves suffering to recover their loans situations which can even push them out of business. This is especially when you give loans to family members and friends. Many financial planners warn that interfamily or loans given to friends can lead to trashed relationships, and shattered finances.

Many times, if you lend money to friends, they expect that you will write off their debts without considering your financial situation. Many people end up in financial troubles as a result of lending to family members. There are some steps you can follow to wisely lend money to friends and family and also earn profits from the money, below are the steps you can follow.

Draw up contract
Before you give a loan to a friend or family member, make sure you draw up a legally binding contract with them. It may be vey hard for you to get your monthly installments from a person you know so well, you therefore need to source the services of a registered third party in your agreement who will take on the task of collecting money on your behalf. In the first place, it is not a good idea to lend money to a friend or family member, and if you are to do it, put your self out of the picture, and let the third party firm do the collections. You can also use contracts of promissory notes in stationary stores.

Assure them that you need to be paid back
Though you must be prepared for default payments when you are giving a loan to a friend or family member, you should let them know you seriously need your money back at a specified period in time. Discuss with them what will happen if they pay late or miss their payments. If possible fix an incremental interest rate in case they miss or make late payments.

Consider recording a mortgage debt
If you are lending money to family member or friend to buy or refinance a home, consider having the debt officially recorded with the county clerk as a mortgage against the house. That will allow the borrower to deduct the interest on the loan, since the debt would be secured by the home, and gives the borrower the option of foreclosure
Make sure they have a reliable income source
Some people are tempted to lend money to family members and friends who do not have a reliable income source and yet expect to be paid back. Compassion may cause your financial downfall while making others to rise up. If you feel the person will not repay you, then do not give out the loan except in cases where you have excess money and you can come in to help.

Conclusion
When you refuse to lend money to a family member or friend, they may term you as a bad non cooperative person who only cares about themselves, and if you lend money to them, they will call you a weak planner if you go down the road of financial ruin as they fail to pay. There fore, you have to be extra careful in such circumstances and using the advice above from the world of the wise will help you lend to friends and yet earn profits from them.