Small Personal Loans – Take Caution When Loaning Money

| January 3, 2012

Everyone runs into financial problems from time to time along their life journey. People solve financial issues in various ways. If they have a home with equity, they might take out a line of credit to take care of pressing financial issues. Others will get a credit card loan and then slowly and carefully repay the debt. Getting a loan for a home or car can be wise because it lets the borrower pay the purchase price overtime. For most people that is the only way they could ever own a car or property. Often, because of immediate needs or poor credit, personal loans are necessary.

A personal loan is usually made between relatives or close friends. It can be excellent or end in disaster. The later is often the case. A loan between two people can be done with a hand shake. They both agree on amount of money and when and how it will be repaid. Many times there is no interest added on. It is just a set amount. Parents do that with teenagers as a way to teach them good money skills. Helping them plan a payment schedule could be an excellent idea. These loans are usually for amounts under one hundred dollars.

Because there can be misunderstandings with personal loans, it is a good idea to have a contract. That way there can no confusion about the terms of the loan. It can be written by the person doing the lending. It is not necessary to have legal help. For very large amounts, it could be a good idea. The terms should include the amount, how it will be repaid, the interest rate and exactly what the consequences for failure to pay will be. It should be a business deal and emotions not considered.

People often fail to repay personal loans. If they have other pressing issues, they will pay them first. A personal loan will not show on a credit rating and so they have no fear of ruining credit by not paying the debt. Often they over borrowed by using a personal friend or relative as the lender. The loan was taken out and given with emotions and not with common sense. Feelings can get hurt and relationships broken.

Personal loans should only be done with extreme caution. It might be a better idea to just make the amount of money a gift instead of a loan. It is not worth the chance of ruining relationships.

Category: Payday Loan

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