Most people would like to help their friends if they could. Friends may ask for a loan because they can not find a good bank loan or don't want to pay the high rates. Don't feel obligated to loan the money you can not afford it. Only give money if you are absolutely sure it is a good investment.
Step 1
Analyze the situation. Think of your friend in business terms. If he has had problems with paying back money before, it may not be a good idea to loan him some more. Ask what the loan is for and why he does not want to go through a bank for the loan.
Step 2
Settle on an interest rate. Offer her a lower rate than any bank would to make it worthwhile for both parties. Your friend might find it insulting if you charge interest, but if your loan is over $12,000 then you have to charge it anyway to avoid incurring a gift tax, according to Credit.com.
Step 3
Make it official. Create a document outlining all the terms of the loan. If you feel uncomfortable doing this, just remember your friend will be grateful to even receive the loan. Provide everything in the document including interest rate, penalties, and how to make payments.
Step 4
Set up a payment schedule. This is the easiest way to avoid late payments and debt in the long run. Make it clear when you expect payments and how you would like to collect them. By making the loan and payments more official, it will also show your friend that you are serious and are encouraging him to make prompt payments.
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