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A Financial Planner Shares Tips On How To Lend Money To Your Family

Borrowing money is a business transaction.
PHOTO: PEXELS

Over the weekend, Pia Wurtzbach and her sister's falling out went viral after Sarah fired off a series of Instagram stories. Several of the posts touched on money. Lending money is tricky, even more so when it involves friends and family as both parties see it more as a personal transaction. It shouldn't be the case as borrowing money is a business transaction and should in fact come with interest, said financial planner and YouTube content creator Salve Duplito.

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The former Miss Universe has not spoken about the controversy and Sarah set her Instagram on private. Only the two of them know the entire story. But for millions of Filipinos, family and finances are closely linked and there are ways to manage the two.

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"No one should be obligated to lend to relatives. Anyone can say no and the decision to explain why is purely personal. If lender chooses not to explain why he will not lend, the borrower must accept with no misgivings and move on," Salve told reportr.

"It should always still be a business transaction, with a contract (I call this a love letter) that includes full amount of loan, term of loan, and an interest. Any loan that is interest free is not good for both borrower and lender," she said.

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How much interest should be charged?

Salve suggests pricing the interest between corporate debt and a personal loan. At current rates, it's higher than five percent per year but no more than 10 percent.

Why charge interest?

If a loan is interest free, studies have shown that borrowers are less likely to prioritize paying them, Salve said. 

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What if the money issue blows up?

Family members can hire a mediator, a financial adviser, to help them sort out the problem, Salve said. This will "remind both parties that money is never the most important thing. But knowing how to handle it allows you to do the things that are most important," she said. "There are ways to resolve money concerns that will not scar a family for life," she said. Knowing how to navigate financial matters with loved ones "allows you to do the things that are most important," she said.

Salve Duplito was a long time host of ANC's On The Money. Get smart money advice by watching her videos and subscribing to her YouTube channel. Check out one of her most recent vlogs that talk about debt.

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