You must have heard often people saying, “I lent money to my friend, but after that, he no longer behaves like a friend”. Especially, if you are a senior citizen, try to avoid lending money to your friends and family because it’s not easy to ask them to return that money. It can be challenging for a senior person to run from pillar to post to recover their money, so they should avoid lending their money unless it’s essential. Now, the question is, what steps can they take to reduce the chances of a loss and make the lending process safer? Let’s check out three important things that senior people should do when they plan to lend money to someone.

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Lend Only An Amount That Doesn’t Impact Your Retirement Plan

Remember, you no longer earn money and depend on your accumulated retirement corpus to meet your expenses. Before you lend money, check your financial needs and estimate how much extra funds you have, i.e., over and above the funds required to meet your retirement goals and for your contingency needs.

You can lend a small part of the extra funds. Extra funds can help you as a financial cushion, so avoid exhausting it completely by lending it to other people.

Lend In Front Of Your Friends And Close Relatives

When lending money, make sure you give that you involve your family members in the entire process and give money in front of them. Your close relatives or friends should be informed about the details of the person to whom you have lent money, the amount given and the return timeline. You can authorize the family members to receive the money from the borrower and also mention the details of the authorized person in your will.

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Discuss The Timeline For The Return Of Money That You Plan To Lend

Before lending money, check the purpose for which the borrower needs your financial support. If the borrower needs money for the wrong reasons such as for gambling, speculation, or fulfilling their luxury needs, tell them that you can’t lend money. If the borrower has approached you for a valid reason, discuss the applicable terms and conditions such as the timeline to return your money, the interest applicable on it and if possible, you can take a post-dated cheque to ensure a timely return of your money.

Lending money to your friends or close relatives can be tricky because you can’t chase them again and again when they delay returning your money. If you chase them often, they may feel bad and you may end up putting a strain on your relationship and you can’t afford to lose a relationship after your retirement. So, lend money only when you think there is no way to avoid it or you are the only hope left for the borrower.

The author is an independent financial journalist.