Raise your hand if you ever gave someone a loan that was never returned. That’s exactly what bad loans look like. A loan that will likely never be repaid! It’s probably ruined a few of your relationships and made you distrustful of human beings. It surely has made me question a few things in my lifetime.
The good news is, we have the chance to learn how to go about things better. You are here reading this to know how to significantly reduce your involvement in issuing bad loans and if you can help it, vanquishing it all together.
Before giving out your hard-earned money as a loan, you must ask the following questions!
1) Can I afford to lose this money?
This is probably the most important question of all.
Ask yourself “If it turns out to be a bad loan, would I be okay with that, or would it break my back and make me bitter?”
As a rule of thumb, it’s smart to only give out amounts you can afford to lose without regrets.
2) What are the chances I’ll get my money back?
You have to be real here. Is the borrower giving you a solid plan A plus backup plan(s) that greatly reduces the risk of defaulting on the loan when due? Assess this thoroughly.
3) What collateral can I hold on to?
To be doubly sure (especially when serious amounts are involved), it’s prudent to have a valid, vetted, signed and sealed written agreement that protects you and your money. Get some good collateral for your loan.
4) What is this person’s track record with money like?
How creditworthy and trustworthy is he/she? Especially if you have a relationship with said person, it’s good to know how they are with money. Whilst individual actions may lie, patterns do not!
5) Is the reason for the loan justifiable and verifiable?
It’s not new for people to cook up all manner of touching stories to extract money from others. Be a detective and see if the reason for the loan is indeed true and can be verified.
When you know these answers for sure, then you can go on to make an informed decision. Pay attention to the alarm bells that ring in your head. Don’t be sentimental with your giving, fall for guilt trips, or act based on blind trust. Make sure the cost to you is not too great. The fewer loans you give out that turn bad, the better for you.
If you evaluate your loan decisions the right way and you’d probably never give out a bad loan again! You’re welcome.
2 replies on “Never Loan Anyone Money Until You’ve Taken This Important Test!”
I am currently writing a paper and a bug appeared in the paper. I found what I wanted from your article. Thank you very much. Your article gave me a lot of inspiration. But hope you can explain your point in more detail because I have some questions, thank you.