From time to time you might experience friends or family requesting money and while you might want to fork out your hard earned cash for some, you might need to ask yourself whether it is the right thing to do to be handing out your money to each and everyone that asks.  The best way to make a smart money-lending decision is to ask the following questions:

1. Why does this person need money?

The big question is why does this person need the money? Are they using it for education or for something essential such as medical expenses or are they buying the latest TV or going out on a 5-star cruise they can’t afford. Ask them why they need it and make sure it is an honest answer.

2. Are there other options?

Check to see if there are other options rather than lending the money to them. Can they do payment installments for the new sofa they want to buy on interest-free loan, are there grants for the new business they want to kick off that they could apply for? See what alternative options are available rather than putting your hand in your pocket.

3. Can I afford to lose this kind of money?

While your friends and family might think you’re rolling in dough, ask yourself if you can afford to not have this money in your life and will it impact you. Spotting someone a fifity dollar note is one thing, but if they need a large sum of money for a car loan or more, you will need to be sure that lending this money will not impact your lifestyle.

4. How well do I know this person?

Do you know this person very well and are you likely to see them again once you lend them some money? Consider if they are a good friend or family member or are they just coming out of the woodwork to get some cash off you as they are in desperate need?

5. Does this person have the means to reimburse me?

Will you be expecting the money back and is it truly a loan or will you be giving the money and not expecting it back? Consider if you are willing to forego the money if the person you are lending it to can’t (or won’t pay it back).

6. How will this loan affect my relationship with other people?

Lending money can be a difficult process and it can affect relationships, so do it with caution. While you might think that you are helping, it could hurt your relationship in the future so be sure to consider everything before you leap into lending money.