Deciding to provide a personal loan for a friend is an act that can either become a means of deepening the relationship or ripping it to pieces. If you have thought it over and have decided to move forward with extending your best personal loan, there are several steps that both parties should agree to, in order to make sure neither of you develops hard feelings from this transaction. Here are a few tips to help you make sure a loan does not come between you and a loved one.

The borrower should understand that while this is not a loan being obtained from a business, a loan is nevertheless a business transaction. While it may not be necessary to run a credit check and provide last year's tax returns, the borrower should be very honest with the lender about the ability to repay the money in a timely manner. Both parties should come to a clear and precise understanding about how and over what amount of time the borrowing will be repaid. If this is done in advance, then there will not be any conflict later on regarding the perceptions of either party.

Along with determining the duration and repayment schedule associated with your best personal loan offer, it would also be prudent to discuss such matters as what will happen in the event circumstances change. Even with the best of intentions, all sorts of things can happen. An unexpected major expense may arise for the borrower; a job could be lost or work hours reduced. By working out how matters will be handled in the event of a major change in the ability of the borrower to repay, hurt feelings can be avoided on both sides.

When it comes to friends and family, we all sometimes tend to think that it is okay if we let things slide a little. The borrower should treat the repayment of the money as a real obligation, not one that he or she can address when the time is convenient. The borrower has already been extended a courtesy, in that the personal loan saved a lot of time and effort that would have been spent complying with application procedures at a financial institution. Also, with a personal loan, the odds are that the borrower has obtained a much more liberal repayment plan than any financial institution would allow. Under those circumstances, it should become a matter of not only integrity but also as acknowledgment of a favor granted that the payments are made on time.

The lender should also make sure that he or she has no plans for the money borrowed for the duration of the repayment plan. Lending money that is in fact earmarked for a pending debt or obligation will do nothing to help keep the relationship cordial. While it is great to help out a loved one, do not endanger your own financial status to do so. You won't be able to help anyone if your own situation become precarious.

By taking care to spell out the terms of the personal loan, and communicating honestly with one another, you can ensure that providing the best personal loan you can will draw you closer to your loved one, rather than create a breach in your relationship.