July 18, 2024

Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). These offers do not represent all available deposit, investment, loan or credit products.
It’s said you should avoid three things in conversations with friends and family — politics, religion and money. That last one is important as financial matters have been known to ruin relationships, whether couples can’t align on spending habits or family members bicker over assets in wills. 
The Future of Finances: Gen Z & How They Relate to Money
Discover: This Credit Score Mistake Could Be Costing Millions of Americans

And when it comes to the big ask of lending money to family members, experts and common folk alike have different opinions on the best practices. After all, a parent lending money to a child is likely more lenient in repayment terms than a bank. Could a contract help?   
Bonus Offer: Open a new Citi Priority Account by 1/9/23 and earn up to a $2,000 cash bonus after completing required activities.
In a recent Newsweek article, the writer profiled a couple where the husband asked his wife to borrow $14,000 for an unspecified reason — she said she would but only if he would sign a contract that he’d return it in full. 
Though users in the Reddit community where the wife shared her story strongly supported her decision, the husband was none too pleased. He was described as “shocked and offended” and admonished his spouse “for involving courts and lawyers between family.”
It actually doesn’t have to be that formal, says Kristen Ahlenius, an Accredited Financial Counselor® (AFC) and Director of Education at Your Money Line, a leading corporate financial wellness platform. Just having clear parameters that are written down and shared with both the borrower and lender is very effective, she shares.
“I think [a contract] is a great idea as long as it makes sense. If it’s a smaller sum of money, you might have to weigh whether or not having that additional security is worth it,” says Ahlenius. “But some kind of agreement is great for you and great for the person who’s borrowing from you because in a loving and caring way it kind of forces their hand when it comes to repayment.”
Life Insurance Offer: Instant coverage upon approval. Get a quote in seconds and apply online in minutes. No medical exam ever – ages 18-60.
As a culture, we generally have a harder time setting boundaries with family so having this type of agreement is helpful in verbalizing what is expected, she adds. Though Ahlenius hasn’t personally had a client who had a family member sign a contract for loaned funds, she says she has had clients who have done so by establishing set standards. 
“I think that part is just as important as the contract piece — if you’re loaning money to someone, it’s probably safe to assume that you care for them and want to continue to have a relationship with them and vice versa. So I think those clear parameters can be just as helpful as an actual contract,” she says.
Ahlenius adds the reality of a contract between two individuals is, just because you have it in writing doesn’t mean you’ll get anything if they don’t pay. “You’d still have to pursue legal action, so that’s the other side of it too. In the case specifically from Newsweek, is the wife really going to sue her husband if he doesn’t pay?”
Life Insurance Offer: Rates start at just $10/mo. No medical exam ever – ages 18-60. Get your quote in seconds and coverage in minutes, if approved.
Ahlenius has a few pointers in putting together an informal agreement. First and foremost, be clear on expectations. The agreement should note how much money is being borrowed in total, if it’s a lump sum or provided over time, and how and when it’s being repaid. Is it cash, electronic payment like Venmo or Paypal or some other means? 
In addition, the agreement should note when payments will start and end, the day of the month they will be paid and how much the payment will be for. It could look similar to a summary sheet for a loan you might take out with a bank, like a mortgage, Ahlenius adds.
One great way to keep track between both parties, she says, is a Google sheet or similar platform where both the borrower and lender can see it all laid out as well as get updates in real-time by tracking payments that have been made and how much is left.
For the borrower, Ahlenius cautions to be honest and upfront in what is possible for repayment. “So often I think when we’re in a position where we don’t want to put a burden on a relationship you might feel that you want to pay this person back right away. But you should not do that at the expense of other obligations or your emotional well-being,” she says. “It’s best to make sure you take a really good look at what you can truly afford to repay and be honest about that both with yourself and the person who lends you the money.”
She also has words of advice for the person lending the money. “If you’re the lender of these funds, something to be mindful of is, if someone owes you money, that doesn’t give you the right to be upset about how they spend the money they do have. If you have an agreement with someone and they’re paying you $50-100 a month and you see this person out to dinner or getting nails done or buying a new pair of shoes, you shouldn’t have an opinion about how they spend the rest of their money. That really can cause money conflicts in interpersonal relationships a lot of times.”
In fact, according to the Newsweek article, citing a recent SunTrust Bank survey, it was found that 35% of respondents “blamed finances for the stress they experience in their relationship.”
As well, Ahlenius says, keeping in mind how lending the money might truly help or enable someone is another important factor when weighing the decision to offer a loan to a family member.
Take Our Poll: Do You Think Student Loan Debt Should Be Forgiven?
“Generally speaking, if a family member is asking you for a loan, you’re probably going to be close enough to have some insight into how they live their financial life and to know if lending this person money benefits them or hinders them from a behavioral perspective,” she says, adding, “There might be some instances where you know if you loan this money it might be financially enabling. It might be hard to say no but it might be best for them and your relationship to do so.”
More From GOBankingRates
Share This Article:

Sponsored Links by Zergnet Zergnet
Every day, get fresh ideas on how to save and make money and achieve your financial goals.
Advertiser Disclosure: Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). These offers do not represent all available deposit, investment, loan or credit products.
Savings Accounts
Checking Accounts
Certificate of Deposit
Money Market Accounts
Credit Unions
Interest Rates
Get Started
Best Savings Accounts
Best Checking Accounts
Best CD Rates
Best Money Market Accounts
Best National Banks
Best Online Banks
Best Regional Banks
Best Credit Unions
Best Bank Promotions
Find The Best Bank For You

Real Estate
Your Strategy
Get Started
Best Online Brokerages
Best Investing Apps
Best Mutual Funds
Best Stocks for Beginners
Best Robo-Advisors
Cheap Stocks to Buy New
Best Cryptocurrency to Buy Now
Next Big Cryptocurrency
Find The Best Bank For You

Social Security
Savings Advice
Get Started
Best IRA Providers
Best Roth IRA Providers
Best 401k Companies
Best 401k Plans
Retire Early
Best Online Banks
Best Regional Banks
Best Credit Unions
Best Bank Promotions
Retirement at Any Age

Credit Cards
News & Advice
Get Started
Best Credit Cards
Best Reward Cards
Best Cash Back Cards
Best Balance Transfer Cards
Check Credit
Raise Credit
Repair Credit
Find The Best Card For You
Live Richer™
Saving Money
Home Tips
Side Gigs
Net Worth
Financial Planning
Get Started
Create a Budget
Tackle Debt
Know Your Net Worth
Find a Side Job
Your Money Champion
Pay off Your Mortgage
Live Richer Podcast
Find The Best Bank For You

Trending Topics
News & Events
Crypto on the Go
Travel Rich
Filing Taxes 2022
Back to School Finances
GEN Z: The Future of Finances
Small Business Spotlight
Financially Savvy Female
Economy Explained
Top Money Experts
GOBankingRates Newsletters
Retirement at Any Age


Sign up for our daily newsletter for the latest financial news and trending topics.
For our full Privacy Policy, click here.


About Author