Utang or debt can ruin relationships either personal or business, not to mention the damage it may cause to your finances. Obviously, people know about its cause-and-effect, but then many of us are still facing the dilemma.
Regardless of the reason why you’re in debt, it affects the personality of the individual. To avoid the dilemma of having sleepless nights when the payment time comes, it makes sense knowing how to prevent the negative effects of lending money.
- Written agreement
As you will lend money, it’s important to prepare a written agreement signed by both parties. This is a smart way that will spare you from possibilities when the borrower ignores or denies the financial obligations.
You should not rely on verbal agreement because a signed agreement is a strong evidence. In case the money is sent electronically, make sure to keep the receipt for future references.
If you will lend big amount of money you can consider asking for collateral. It can be a property (car, appliances or land title) that will guarantee the payment. This means that if the borrower fails to pay the debt, the creditor can take the property pledged as collateral.
- Post-dated checks
Another way to avoid the pitfalls of “utang”, the creditor can ask for post-dated checks from the debtors. But, make sure that it’s not a bouncing check.
- 45% rule
The percentage rate used by banks and other lending institutions varies. But, the financial status of the debtor is one of the factors considered.
If you will lend money, make sure to limit the amount of loan according to the income of the borrower. You can ask for a proof of income (pay slip) and check the net income of the borrower. Considering the 45% rule, it should be allotted for the daily expenses of the borrower. Determine if the remaining 55% of the net income is enough to pay for the loan and other financial obligations.
- Small claims
Pursuing legal actions for failure to pay the loan can be expensive. But, for amounts below Php200,000, you can use the 2016 Revised Rules of Procedure for Small Claims. You can file the case at the court without the need to hire a lawyer. Thirty days after the hearing, the court will give the decision.