Ask About the Purpose of the Loan

In terms of personal loans, banks don’t ask what you’re going to use the money on. But they do want to know what you’re going to spend money on if you’re taking a business loan. The bigger the sum, the more they’ll scrutinize your answers. However, you’re not a bank. Your whole deal isn’t to hand money around to everyone who calls.

It may be awkward, you might think it’s none of your business (when it 100% is!), but you have to ask the recipient of the loan what they plan on spending the money on. If they get defensive, that could be yet another red flag you, so watch out. If they’re being evasive reassure them that you’re not judging their financial situation.

Most family members might not feel comfortable answering but you need to stand firm and tell them that without this knowledge you don’t feel comfortable lending any money. As much as we hate to say it, we know there are people out there who would spend the money right away on things you might not approve of, such as splurging or God forbid gambling.

These cases are rare but you still need to cover all your basis!