Lending to family needs guidelines
Many of us have been saved or have saved family with loans in times of need.
But, lending to family members can end up causing much acrimony when the loans are either not repaid or repayment is delayed.
Jacob Ramonti, who runs Ramonti Debt Counselling in Protea Glen, Soweto, says when you lend to family members, it is important to take into account your relative's capacity to pay you back.
"If your brother earns R6000 a month, you mustn't expect him to be able to pay back a loan that is double or triple his income," Ramonti says. He recommends you lend your family member up to 25% of what they earn, but acknowledges such hard-and-fast rules are difficult to apply.
Thembisa Mngadi, a financial planner with PSG in Durban, says your family member should be open and honest about the terms on which they wish to borrow.
"If the borrower is unable to pay, they should just state that they are seeking help. But they should not say they are borrowing. Because saying that creates a certain expectation from the lender."
She says if the terms are not clarified at the outset, your family member may claim that they didn't say when they would return the money and you shouldn't expect it repaid at a particular time and that's when the conflict starts.
Mngadi says it may be better to borrow from a formal lender like a bank.
She recommends you set limits as to how much you can lend a family member and also a timetable for paying back.
You don't want to be what she calls imaliiyavuza and let family and friends feel they can always get money from you, not return it and get away with it.
Mngadi is not in favour of charging family interest, but says if you do charge interest, you should decide whether you're charging commercial interest or just enough to incentivise your relative to repay the loan, she says.
Nosipho Cacambile, who works as a financial administrator in Cape Town's Khayelitsha township, says when you lend to family members or friends, you have to set a limit on how much you are prepared to lend in line with what you are prepared to lose if the loan is not repaid.
She recommends finding out whether the borrower is known to have paid back what they borrowed before from other family members, like a credit check done by formal lenders.
Ramonti says he wishes families would form their own lending societies and make regular contributions to a fund from which a member who has an urgent need can borrow.
He says people have more respect for a society than for individuals.
"If your family society has say eight or 12 members or more, the borrower knows he is answerable to all of those people, not just one person. This will definitely ensure money borrowed is returned," Ramonti says.