You feel the obligation to give your assistance to your brother who can no longer afford his rent or a very good friend for example. This altruistic act can however turn against you.
Here are some common consequences of lending money to relatives or friends:
- Harmful behavior causing additional debt as a result of a loan.
- Cosigner undermines the credit rating of the caregiver.
- A perception of favoritism between members of the family module.
- If there were death, would the loan amount appear in the will and be subtracted (for the obligee) from his inheritance?
- If you do not see a penny after a period of 3 years and have not tried any intervention to recover these sums, consider this lost money.
- If you have lent money to a significant family member, it may attract the interest of the tax if the obligee pays interest at a rate higher than that of Revenu Québec (3% approximately). The loan must then be repaid in one year on the tax side.
- There is not a ton of recourse if the borrower does not have a majority yet.
- If the borrower declares bankruptcy, only the guarantees in front of a notary will obtain a recognition.
There is a method of lending an amount to a parent or friend
You certainly do not want to incur a debt that will overwhelm you for a long time.
Make sure you put at the disposal of others only an amount in excess that will not put you and your finances in any embarrassment at any given point.
If this loan is already tightening your belt, things will certainly not improve.
Follow all of these steps to ensure that you maintain a friendship and also protect yourself adequately:
Need a helping hand to refuse to lend money to a friend?
To refuse is not the worst thing in the world. Make it clear to your family, cousins or friends that you are more interested in keeping a good relationship with them than losing it during an unpleasant situation.
If that does not work, try some other simple approaches such as:
- Demonstrate your assistance otherwise, as in lieu of lending for the refurbishment of a vehicle, pay for a bus pass.
- Affirm simply that you are not able financially to help, despite what he or she can believe.
- Say you want to meditate on it and start witnessing your negotiations.
- Refer the party to the services of a licensed insolvency trustee, ACEF or a financial security advisor.
- Provide an example of a situation that went wrong in your case.
Most of these situations are difficult. Show friendly behavior despite the announcement of the annoying news.
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