How can you give a loan to a relative in a legal way? - By: JasonHolmes

Problem

My cousin sister is knee-deep in debt. She does not have money to pay back her creditors. She came to my house yesterday and asked me to give her a loan. The loan amount is around $4500. I can afford to lend money to her. But I want to do it in a legal way. Can I draw up a contract by an attorney? Is it the only legal way to help my financially stressed sister? I want to help her out. But I just don’t want to lose my hard earned money. Some of my friends are telling me that it is not a good idea to lend her money. Is it really a bad idea to help my sister get out of debts? Thanks for any information.

Solution

Your friends have done their duty by warning you against lending money to your sister. There are myriads of reasons why you should not lend money to her. First of all, if she is going through debt problems, then why is she is not taking advantage of debt plans to resolve the matter? She can easily make a comparative study of the debt plans and select the one that can help her to clear dues faster.

Secondly, your cousin sister could have easily gone to a financial institution and apply for a loan. But she has chosen to not do that. There may be 2 possible reasons behind her decision:

1. The financial institution may charge high interest rate on the loan
2. The financial institution simply reject her loan application

If is she has asked for your help for the second reason, then you are less likely to get back your money. There is another big reason why you should not lend money to your sister. You’ll put your family relation at stake by lending her money. If she does not pay back the loan, you’ll be compelled to ask about the payment. Her family may tell every body that you are a cold blooded and merciless man, who does not care about his sister. Worse, her family members may tell you to forget the loan completely.

Anyway, there are several ways to lend money to your cousin sister in a legal way. You can make a written agreement with your sister. If she fails to repay the loan, then you won’t be liable to pay gift tax to IRS.

Next you can consult a lawyer and ask him to draw up a contract. Make sure the terms and conditions of the loan are properly stated in the contract. Go through the content of the contract before signing it.

If you can’t afford an attorney, then you can get help from different lending websites. These websites can help you draw up a contract/agreement for a fee. They will make the agreement as per your requirements. Explain the terms of the loan to your sister clearly.

You should be practical while lending money to your sister. Make sure you tell your sister about the steps you’ll be forced to take if she doesn’t pay you back. You can also ask her to pledge collateral against the loan.

Finally, if she can’t pledge collateral against the loan, then inform her that you’ll be forced file a lawsuit in the event of loan default. This will make her serious about repaying the loan.

About the Author

He is a regular writer with Debt Consolidation Care and is also a contributory writer with other financial sites. His expertise is woven around various aspects of the debt industry and with his e-books he tries to impart to people the different situations and simple solutions to get out of difficult situations. Some of his works include e-books like ‘Credit Score The Quintessential Therapy for a Happy Pocket’, Take Creditors and Collection Agencies to Small Claims Court’ .

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