To make a friend loan ethical and safe, the loan amount must be set carefully to meet the needs of both the the lender and borrower. You may find these simple guidelines to be useful.
As a lender
- Only lend money you have earmarked to save or invest in another way. Do not lend money needed for everyday expenses or smaller unexpected expenses.
- Maintain a sufficient reserve. An amount equal to 6 months of your usual spending is recommended.
As a borrower
- Only borrow what you can afford. You should be comfortable with the monthly repayment amount.
- Make sure that your income covers your monthly spending and loan repayments while keeping a financial buffer for unexpected expenses.
- To work out how much you can afford per month, take your monthly income and minus all your expenses. This should give you an indication of your monthly unspent income. The monthly repayment should be less than this amount.