4. Have a Backup Plan

To be on a safe side, no matter how much ever you trust your lender, you must always have a backup plan. As you know future is unpredictable and so are the thoughts of a person. Don’t ever feel too surprised to see your big hearted friends suddenly changing into a tightwad.  First they may agree upon paying you a hefty amount as loan, but later they may decline your loan request or pay you lesser amount. However, you must never agree to pay a third party depending upon the loan amount promised by your friend, unless you have a back plan.

More: George Soros: An Investment Prodigy

5. Agree on Loan Terms

If you pick and agree on the loan terms, it will keep things clear and also ensure make smooth repayment of loan. A standard term includes an amount, an interest rate, the term (years of repayment), repayment type and repayment frequency (monthly, quarterly or yearly). The interest rate used on intra-family loans averages 4.5 percent, however the final interest rate should be settled between you and your lender in such a way that each have win-win situation. The best is you agree on an interest rate which is lower than the rate charged by institutional lender, and higher than your lender can earn on an investment of similar length. This will also make the borrowing appear like a loan and not a gift from a relative.

Also Read: 7 Tax Free Incomes Which Can Make You Rich