| 1. |
Taking financial decisions with emotions |
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Never mix emotions with finance. It is a dangerous cocktail. Establishing a financial relationship with your friends and /or relatives is risky, as in case of default you not only lose your money but also a relationship. |
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| 2. |
Lending money |
| First principle is to never ever lend money to any one. If at all, you have to do so, then be sure that you do not mix your emotions, have a legally enforceable agreement with some security and collect the repayment post-dated cheques in advance. This will protect your legal interest, in case of a default. | |
| 3. | Becoming a guarantor for a loan taken |
| The role of a guarantor is very critical and should never be taken. The reason why banks and finance companies require a guarantor is that they may not be comfortable with the borrower’s ability to repay and hence want they want to contain that risk. If you become a guarantor, you are accepting the risk that you will have to repay the loan, if your friend or relative defaults. | |
| 4. | Applying for a joint loan |
| This would mean that both you and your friend/relative are jointly responsible for repaying the loan amount and in case if he/she defaults, you will be responsible and the bank or finance company may sell the security or asset that both of you have pledged as security against the loan. So you may lose the asset, even though you have repaid your share of the loan. | |
| 5. | Purchasing assets in joint names |
| This is a risky proposition as if you purchase assets jointly and later on if you need money and want to encash your share and your friend/relative refuses to sell this asset or even buy out your share, then you are stuck with an unsold asset and will be unable to get money when you needed it. | |
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Prashant M.Mehta
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