People are confronted with financial difficulties for several reasons. It may be a medical emergency, a payment deadline for school tuition, or a personal obligation that needs to be paid off. In difficult situations like these, one relies on their loved ones. It’s easier to borrow money from your family member as it is quick and simple, but also can turn into a Pandora’s box situation for many. If you find yourself in a situation where you want to support your friend by taking a personal loan, there are a few things that you should keep in your mind.
1. Get into an agreement with your friend or the needy: Firstly, you must analyse the risk joined with taking the personal loan for a close one. While you are discussing with the lender for a personal loan, you should also negotiate with a friend or relative. The loan’s purpose, amount, date, and tentative payback date should all be included in the agreement.
2. Keep track of the interest rate you’re paying on your personal loan: You may not be interested in generating a profit on this deal since you are attempting to help the fellow. The easiest strategy to safeguard your interest is to have your friend or family sign an agreement with the same interest rate as you are charged by the financial institution. The reason for accepting this loan is that they are unable to take out a personal loan. Existing loans, a bad credit score, or being unemployed might be factors.
3. Have a written repayment plan in place: Financial matters usually sour relationships as there is no written agreement. It may be convenient for a short term but can make a big mess in the future. Circumstances change over time, and it would be impossible to enforce anything in the future without a specific repayment plan. Remember that you must repay the personal loan to the lender at a pre-determined EMI within the specified time frame. In the event of a delay or default, your credit score is at risk.
4. Add all your necessary clauses in the agreement: You may have made a good faith loan to a friend or relative. In this situation, you’ve taken out a personal loan to help them out. You are legally obligated to keep your word to the lender. He will not accept any EMI payment delays or defaults. You must include payback stipulations in your contract, as well as a penalty if you default. Remember that if they don’t make their payments, you’ll have to deal with the lender. Your credit score will suffer as a result, and borrowing will become more difficult in the future.
5. Get the contract legalised: Remember that unless an agreement is written on stamp paper, witnessed, and notarised, it has no value or legal validity. It’s generally a good idea to get these agreements notarised for further security. It is preferable to maintain the agreement officially rather than being vague and face the weight of the consequences in the future. Otherwise, your good deed might get you in trouble. It will hold up in a court of law if you put it in writing and get it notarised. Because you are the one paying the third party, such as the bank or NBFC, you will need this to defend your interests.
Conclusion
There’s nothing wrong with taking out a personal loan on behalf of a friend or relative in an emergency. To safeguard your interests, make sure you draft a parallel agreement with the borrower to avoid future conflicts and help a loved one to overcome a difficult situation. Check your personal loan eligibility and personal loan interest rates before taking a decision. Also, do not stress about the repayment, as you can make use of the Personal Loan EMI Calculator to understand the status of your loan.
Also Read About: Financial Independence: Putting Money in the Right Places
