First of all, don't get carried away.ou may be elated at the opportunity to share your riches with everyone, but keep in mind that you probably want to keep some for yourself, too. Depending on which family member or friend you're lending to, chances are you may never see the money again.
On that note, only lend the money you can afford to lose. "Only lend up to the amount of money you’d feel comfortable placing on the table in a game of roulette or craps," says Next Avenue. nce you decide how much your debtor can be trusted with, write it down. Record how much you've lent, when it should be paid back, how it should be paid back, whether there will be an interest charge, and have both parties sign it. However formal it may seem, it will prevent any misunderstandings and feelings of being exploited, it will serve as a reminder, and ultimately preserve your relationship and your wallet.
Cheryl Krueger, owner of Growing Fortunes Financial Partners in Illinois, suggests that you consider charging interest if you are lending a larger sum of money. In this risky business, charging interest will give you something to be excited about, plus your borrower won't feel like such a scrounger. Best of all, you will avoid any tax problems.What you may not realize is that if you aren't charging interest, you are making a taxable gift of the interest that you waived," she says.
The US Internal Revenue Service expects the minimum interest charge, or the Applicable Federal Rate, to be 0.48 percent for loans up to three years; 1.82 percent for loans between three and nine years, and 2.82 percent for loans over nine years, according to Next Avenue.
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