Following are the reasons that can cause the rejection of your family loan.

1.Not Following Tax Laws

Family loans can alter the liability tax, whether you are a lender or a borrower.

Lenders are expected to report the income on interest earned and have to make taxable gifts to family if loan has failed to meet the criteria.

And borrowers want to deduct the interests they pay as in home loan, but they can only do this if family loan is set up properly.

To stay out of danger with IRS (qualify tax deduction) , It is essential to obey tax laws. Tax advisor or an attorney can benefit everybody involved. You will not be willing to leave the money on the table.

2.Not Following Other Laws

In supplement to tax laws, there are others laws which are also essential for family loans.

Tricky areas are:

· Foreclosing on a home or accumulating collateral.

· Assets settlement dealings at one party’s death

· Dues collection and reporting action

Now, again you need attorney to make it clear that everything is legitimate. Their fee may save a lot of money for your future.

3.Putting The Lender at Risk

Family loan should be a win-win agreement, lender takes the risk, but borrower should lessen his risk.

Some family members don’t have enough assets to lend money so they put their financial future at stake; it’s really a bad idea. Lenders don’t want to bother themselves for the family loans that require them.

Borrow from retirement account.

· Knock into emergency savings funds

· Use home justice loans

Lender should make loan from excess money because in worst case even if they didn’t get the money back. But otherwise they can be put to a needy position in future.

4.Ignoring the Alternatives

Family loan can also alter its shape into a wrong choice, and can make a thanksgiving dinner in to a ruin, and can destroy the relationships by making relatives in difficult financial position.

So rule out the alternatives before go for a family loan, banks will lend you money but family is a best source if you have given best alternatives to the lender.

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