Lending money to family members can get complicated: there’s always the risk that because of the family connection, repaying it may be considered unnecessary.

What’s the best way to manage family loans?

To avoid getting into serious debt trying to help a family member, it’s important to set clear rules about how money is treated in the relationship.

Eunice Sibiya, Head of Consumer Education at FNB says, “We’ve all heard of or have experienced helping a family member financially. In some instances, the only option to be able to help is to get a personal loan or use your credit card.”

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“Before making funds available to a family member, always make sure that helping out will not severely compromise your financial position. If you need to take a loan to help them, it’s important to budget so you ensure that you can afford the repayments and use a trusted credit provider that will not charge you far more on interest than what the law prescribes.

“Similarly, if you decide to use your credit card to help, you must be able to afford the monthly installments regardless of whether your family member pays you back or not. The last thing you want is to default on your own commitments,” she adds.

Sibiya shares some factors to consider when lending money to family:

Lend what you can afford

While you might see the need to help a family member who is in great financial need, you must be careful not to lend more than you can afford. Even though a reputable credit provider such as a bank will do proper affordability assessments before giving you a loan, the fact that you are the one taking out the loan means you are the one responsible for the repayments.

Set clear rules from the beginning

Lending money to family may be a good gesture; however it must be done within a set of rules to ensure that commitments are honoured while preserving the relationship. Prior to handing over money to a family member, both parties must agree on a repayment plan, and commit to it.

Prior to handing over money to a family member, both parties must agree on a repayment plan, and commit to it

Learn to say ‘no’

If you feel that lending your family money will do more harm than good, be honest with your family in order to save your relationship. Sometimes saying ‘no’ when your family wants to borrow money may be the best way to keep harmony in the family.

You offer them an easy way out

If you regularly lend your family money whenever they are not able to make ends meets, you are giving them an easy way out instead of encouraging them to work through their financial challenges. Perhaps encourage them to see a qualified professional who can help them manage their finances properly.

“While helping family members is a good gesture of support, there must be clear rules as to how money is treated in the family. Helping someone in great financial need is good but constantly helping the same person over and over is actually offering them an easy way out of their financial challenges,” concludes Sibiya.