It may be easy to assume that a person with bad credit is too much of a risk. Lending such an individual money probably means you are not likely to see it back. Ever. But it is important to consider that people enter into bad credit for a variety of reasons and it is definitely something that could happen to anybody, at any time. All it takes is a few bad strokes of luck. A divorce, a sudden and unexpected loss of work, having your identity stolen, or even falling victim to a natural disaster such as a tornado or a flood.
To be sure, there are plenty of people who are absolutely hopeless and lending them anything from a pinch of salt to five dollars would be a huge mistake. Still, we can assume that personal loans are not done in a dark alley with everybody wearing dark hoods and using code names. Presumably, the both people know each other and realize what extraneous circumstances may exist.
Even if this is not the case, there is always risk when it comes to loaning money. Furthermore, if somebody truly is a swindler, they’ll know all the tips and tricks for having a stellar credit rating even if they are least deserving of it. They will know how to hide and mask key information and if they want to get around paying you back, they will.
On the other hand, a sudden and unexpected downturn in the economy, divorce, death of a close family member, or sudden illness can turn a stellar profile into one banks won’t touch with a ten foot pole. That’s exactly why the term is “down on his (or her) luck”, not “deservedly destitute”. Needing a personal loan is something that could happen to absolutely anybody, at any time. Simply relying on a person’s credit ranking as the yard stick is not only unethical, it is simply bad karma.
In lending money it is important to assume a certain amount of risk. This means, never lend money that you cannot afford to part with. Take into account that many close relationships have fallen apart over money and business ventures. So, also consider the social implications of entering into a financial contract with somebody.
If you do decide to make a personal loan to somebody with bad credit ensure that the terms and conditions are reasonable and fair for everybody. But, don’t stop there. It is important to come up with a clearly understood and mutually agreed upon repayment schedule. In case of large sums of money it is wise to take tax laws into consideration. There is sometimes a benefit to making questionable personal loans. It may be a idea to consult a tax accountant and lawyer before the final contract is laid out.
Sometimes, people make purchases of some sort of property or object that is used by the recipient but, remains in the loan holder’s name until it is fully paid for. Too often, these sorts of agreements are made informally. So, problems may arise not as a result of the lack of repayment but, as a result of poor planning.
It is important to take loan resolution into consideration. What happens when the government wants a piece of the pie at the end? What happens if one or both of the people should pass away or become incapacitated? Even if everything is carried out in good faith between the original players, anybody new that may enter the formula may create complications which could have been avoided through proper planning.
In any case, the decision of if, how, and to whom a person should make personal loans is just that. Personal. Despite what the ancient Egyptians thought, you really can’t take it with you. So, the only person who can decide what to do, is you.