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Is lending money putting your finances at risk?

Is lending money putting your finances at risk?

Category: Money

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

We all like to think we'd lend money to friends and family if they were in need. And a large proportion of us do – research from Debt Advisory Centre found that 33% of respondents had lent money to family in the last year – but could you be left struggling if you didn't get that money back?

According to the figures, the average sum of money lent to relatives averaged between £91 and £100, while a particularly generous one in 10 people had given loans of more than £200. However, not everyone will see that money again. In fact, 41% of respondents said they didn't expect to be repaid, comprised of 19% saying they simply didn't expect a repayment and 22% admitting that although they wanted to be reimbursed they weren't sure they would be.

Depending on how much you lend, helping out family could take a sizeable chunk out of your finances. A lot of people don't chase that money either – 26% admitted that when they give someone a loan they don't pursue it, while 18% dropped hints rather than asking directly. However, a sensible 17% made sure to agree a set payment date, and would start chasing as soon as was necessary.

Money is always a difficult subject to bring up, but taking the direct route to securing that reimbursement will often be the best policy. It's important to only lend as much as you can comfortably afford to – you wouldn't want to put yourself in financial difficulty because you helped out a relative – and making sure that the loan is repaid can ensure you won't miss that chunk of money or, even worse, be resentful towards the person you lent it to.

Ian Williams, spokesman for Debt Advisory Centre, has this advice: "Putting your hand in your pocket to help out a family member is very common across the UK. What is less common is actually seeing the loan repaid – and many people find it very hard to raise the subject of an unpaid loan with a family member.

"To avoid the possibility of misunderstandings and bad feeling it makes sense for both the lender and the borrower to agree a firm arrangement up front on exactly what will be repaid and when."

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