When a close man is a financially bad condition, any generous man doesn’t think much before lending him the necessary sum of money. Unquestionably, this is a good deed and is worth a praise. However, nowadays everyone has to stand for his earnings even if he lends money to a friend or a relative. Just think why that person does not get a personal loan from a bank or an online loan provider. That’s it – he has a poor credit history or none at all. Perhaps the borrower has not heard about bad credit loans, it’s worth reminding him, by the way!
On the other hand, when you lend money to your acquaintance, it has no effect on your credit history which is irrevocable in the case of cosigning a loan for that same person. Once you serve as a cosigner, the sense of security is false. Not the borrower, but you become the primary person responsible for the loan. And whether the borrower will pay the debt in time or not, will be included in your credit history.
The cases an acquaintance may ask you for a round sum of money are as numerous and diverse as for starting a business, buying a house or a car, paying a child’s tuition fee, or simply getting back on feet after a disastrous situation in life (a divorce, an accident, an illness, a bankruptcy, etc.). However, before you rush to prove your generosity and lend him/her all your savings, there is another option deserving attention.
Loans for Bad Credits
Personal loans for bad credits can be a great start! Surely this involves some investigation upon the borrower for the lender to be sure he can get his money back on time. Such information, as the credit score (even if it is a poor one) and a proof of certain income, will be probably enough.
Personal loans for borrowers with bad credits carry usually much higher interest rates. Therefore, it will be wise to “brush up” one’s credit prior to applying for one. Perhaps the best start will be pulling free credit report snapshot on Credit.com. On the other hand, a borrower may raise his credit score if he determines to pay high credit card balances, use starter credit line (a credit-builder loan or a secure credit card will do as well) for disputing credit report errors. All this will lead to establishing quite a solid credit history.
Nevertheless, if suggesting applying for a bad credit loan is beyond a question, you should consider a couple of points before lending your own money to your relative or friend.
1. The Right Interest Rate
Setting a fair interest rate is mandatory even if you are lending the money to your beloved man or family member. This way both of you will benefit greatly: the borrower will pay back much less than if he had applied for a traditional lender, and you will make more money than if you had kept the money in a safer bank account. According to the International Revenue Service, if one gives over $12.000 to a person, it might be considered as a gift and require a gift tax. To avoid all this frustration, you’d better set a fair interest rate.
2. Get the Written Agreement
Having the written form of an agreement is the best way of avoiding misunderstandings. And in case you consider insisting on a written agreement will be uncomfortable, there is always a chance to “put the blame” on your spouse, parent or accountant! So, once everything is settled between you and the borrower, you will need to download a sample promissory note. All the terms including the amount of borrowed money, the late payments, and the interest rate are to be spelled in letters. If the borrowed sum is a large one, you may also apply to an attorney for drafting the agreement.
3. Formal Payment Arrangement
If the borrower doesn’t manage to pay the money back on time, it will be much more convenient for him to deal with you than with an official online lender. On the other side, you are not likely to love gathering long debts. To arrange all this mass, make sure the agreement contains all the details of the payments – the late fees, the payment method, etc. It is advisable to refuse to give and receive cash as the latter is untraceable. Keep the copies of checks for the worst case if a misunderstanding arises and you have to prove you lent the money.