Are you lending to a friend or relative?

(Disclosure: This blog post is sponsored by Credit Sudhaar)

Neither a borrower, nor a lender be!” advises an old English idiom, but what do you do if a friend or relative asks you lend money instead of opting for an easy personal loan or any other form of credit? 35 year old Mikesh Chawla found himself in a similar situation a couple of years back when his first cousin Akhilesh asked for a loan of Rs 1 lakh to aid him with his attempt at setting up his own spare parts business in Punjab. Akhilesh assured Mikesh that he had arranged for the rest of the funds and this would only be a bridge loan that he would return in a year.

Having grown up in a joint family with Akhilesh, Mikesh lent him the money in good faith though somewhere at the back of his mind he knew it was not probably the best idea as Akhilesh though enthusiastic was skittish by nature that had led to a couple of failed ventures earlier. However Mikesh let his heart prevail over his sense of logic and lent Akhilesh the money. It’s been two years hence and Akhilesh has once again lost the money as he claims he was “duped” by a supplier. With this turn of events between Akhilesh and Mikesh, relationships between them and even their fathers have gone sour.

This situation could however be avoided only if Mikesh had followed certain ground rules instead of just lending the money on the basis of an informal verbal contract. Here are certain ground rules you can follow to avoid falling into a similar situation like Mikesh.

Get full details of the plan

When you are lending money to a friend or a close relative, he will specify the reason why he needs the loan. Instead of getting a sketchy idea or an overview of what he intends to do with the money, ask for full details. For instance, Mikesh should have asked for a business plan for the spare parts business that Akhilesh proposed and gotten full details of supplier and supply chain management and should have tried to whet it on his own. If the friend or relative tends to get offended by the details or takes it personally, it should serve as a red flag to you.

Check credit profile

While you as an individual cannot access the CIBIL report of a friend or relative you can always ask him to provide you a copy of his CIBIL report. His CIBIL score and CIBIL report will give you an exact idea of how responsible the person is with his credit handling and if he has been making an attempt to improve his CIBIL score by making timely repayments. This will tell you whether he is equipped to repay the loan on time. While it may seem far-fetched and you may be accused of behaving like a bank or any other lending institution, you wouldrather take the blame of acting tough than losing the money at a later date! Mikesh for instance would have confirmed his suspicions had he gone through Akhilesh’s CIBIL report that shows that Akhileshwas onpersonal loan defaulter list earlier.

Discuss repayment terms and worst case scenario

While this is an admittedly awkward discussion to have with a close friend or relative, it is better to discuss terms of repayment, such as the principal, the interest if you wish to charge any and worst case scenarios such as late payment or non-paymentas in case of Akhilesh. You could discuss things like a late charge or even the possibility of a legal action in case of non-payment. While this may lead to some hurt feelings it will eliminate any nasty surprises later. Had Mikesh and Akhilesh had such a discussion there would perhaps not been a day like this when both families who shared almost everything do not see eye to eye today.

Get it in writing

This again may seem far-fetched when you are lending to someone close to you, but it is indeed better to keep a record in black and white rather than entering into a verbal contract. If you wish to keep things simple, have things written on a promissory note on a stamp paper and get the document notarised. Make sure that the agreement is drafted clearly and put out the clauses of repayment. It is recommended that you carry out the transaction via cheque so that it serves as a record as well. The promissory note should also bear details of this cheque. Names and address proofs too should be mentioned correctly in this agreement.

If your friend seems to be taking offence at your suggestions, and if you are even the slightest bit uncomfortable about the lender-borrower relationship consider declining the request. While these may cause anger and hurt in short term it may save your relationship in the long term as your friend ore relative may someday understand your side of the story. Be truthful about your intention and offer service based assistance if you can.

On the other hand, if you have decided to part with your money and give the loan, distance yourself and do not try to micromanage the spending pattern of your loved one. Mikesh and Akhilesh are a classic case of what not to do while lending to someone close and we hope these tips will come in handy if a similar situation arises in your life.

Edelweiss Tokio Life- CritiCare+

(Disclosure: This blog post is sponsored by Edelweiss Tokio Life)

A lot of people cover themselves with medical insurance, which only provides for hospitalization expenses when one is laid low by an illness. Equally important is the provision that you make for the loss of income and financial drain that you suffer during the recovery period.

There are some critical illnesses which put you under financial duress as you are rendered incapable to work and earn income. Some are lifelong conditions that may not allow you to get back to work at any time in the future.

Top 10 illnesses and their financial ramifications

Which are these illnesses? Here,we list down the top 10 critical illnesses that can cause financial disruption in your life:

 

  • Kidney failure requiring regular dialysis : Our kidneys are supposed to filter waste products from our body.In kidney failure, the kidneys malfunction and are unable to process the waste generated by our bodies. Dialysis is a process using which waste and excess water from the blood is removed.It is used to artificially replace the lost kidney function. For patients with chronic kidney disease, this is a lifelong process which renders the patient incapable to work any more. Generally, dialysis does not require hospitalization as it is a recurring activity. However, it renders you incapable to engage in a gainful occupation as you become very weak with the multiple dialysis sessions. Dialysis can cost anywhere between Rs.2000-3000 per session. Assuming two sessions a week, it will result in Rs.24000-25000 per month. This amount wil be burdensome especially if you are not earning.
  • Stroke resulting in permanent symptoms : Blood clots forming in the brain causing certain functions to be impaired is called as a stroke. Stroke can result in partial blindness, paralysis of limbs etc. Any kind of stroke will require a lot of time to recover during which it will not be possible for the patient to contribute productively. A stroke can result in a recovery period of anywhere between 6months to an year. If physiotherapy is involved, it will result in a cost of anywhere between Rs.5000-10000 p.m.
  • Paralysis : When a person is not able to use his limbs to full effect, it’s called paralysis. If the paralysis is partial affecting only one part of the body, it will restrict a person’s movement and prevent him for discharging his responsibilities fully. Again, physiotherapy may be neccessary for you to become capable of discharging normal functions like bathing, walking etc.
  • Cancer : Cancer is basically an abnormal growth of cells. If not diagnosed early, it may spread to all parts of the body. There are 100 types of cancer and recovery pace may depend on the kind of cancer and it’s severity. Chemotherapy is required with multiple cycles; as much as 6-8 during the lifetime of the disease. Each cycle may cost between Rs.50000-70000/- with the scans and tests costing upto Rs.1 lakh. Although, this may be covered with a medical insurance, what is not covered is the loss of income due to the treatment of cancer.
  • Brain tumours : When some cells in the brain grow in an abnormal, uncontrollable manner,  it is called as a benign tumour. Most brain tumours may need a surgery for removal, which will result in some time being lost in recovery. The surgery will definitely cost upwards of Rs.2 lakhs.
  • Burn injuries : Burn injuries are classified on the surface area that is burnt along with the severity of the same. Third degree burns are the most severe needing a longer time to recover and may also require cosmetic surgery. Although most medical insurance plans cover burn injuries, during the time taken for recovery from severe burn injuries, you may not be able to move around much and will have to definitely take time off from work resulting in loss of income
  • Total blindness : Total blindness can be debilitating and can render the affected person permanently unemployable.
  • Cardiac arrest resulting in CABG procedure: When oxygen supply is blocked to the heart due to, mainly a clot in the arteries supplying oxygen-rich blood to the heart, the person suffers a cardiac arrest. As a consequence, the affected person may need to undergo an angioplasty or an open-heart surgery to unclog the arteries.The recovery process may take anywhere between  a week to 6 months depending on the severity of the clot. Costs will vary from Rs.1.5 lac to Rs.3 lac depending on the city in which you plan to get the procedure done.
  • Motor Neurone Disease : It is a neurological disorder affecting cells that control the muscles of the body leading to weakening of the muscles.It affects the locomotive and motion abilities of the patient and can affect his productivity adversely. This is a permanent and irreversible condition and tretment involves increasing the life expectancy. The affected person will definitely lose his locomotive abilities and may never be able to engage in any gainful occupation.
  • Multiple Sclerosis : This disease disrupts the normal communication between all parts of the nervous system leading to various problems like lack of proper vision, muscle weakness ,lack of co-ordination etc.It is generally an irreversible condition and the affected person can be rendered permanently unemployable.

Conclusion

Although you may have covered yourself against the hospitalization expenses by buying a mediclaim policy, the loss of income that will be a direct result of the illness is not covered.

Cover yourself against these critical illnesses by buying a critical illness plan. It will help you with the financial support needed during your recovery phase.

One such critical illness plan is Edelweiss Tokio Life – CritiCare+ which covers 17 critical illnesses and also provides a multi claim option.