Read about all the best practices for making loans with your friends, family, and the people you trust. Also, learn how to best navigate Pigeon Loans.

Loan Tips And Tricks | Pigeon Loans

Loans can be extremely stressful. Add in a family dynamic or even a close friendship, and money starts to become a touchy subject for everyone involved. We all have a story: you sent Betty $5,000 for home renovations expecting to get paid back in two years. However, 3 years go by, then 4 years, and then 5, and you suddenly realize your money will probably never return. After waiting all this time, you’ve lost $5,000, begun to resent your best friend, and you have ultimately realized your longtime relationship with Betty is now damaged.

Despite everyone’s tragic loan stories, lending, or even borrowing money from friends or family can be extremely rewarding. At Pigeon Loans we believe loans among loved ones can be both successful and gratifying. Over the years, the individuals in our community have created, supported, and enabled countless loans with the people they are closest to. We decided to ask ourselves one simple question, “What is the most important thing to remember when creating a stress-free loan with your friends and family?”. We dwindled down our thoughts and experiences into 4 comprehensive tips that you can benefit from when starting your next loan. So, without further ado, we present Pigeon Loans’ 4 Essential Tips to Successfully Navigating Loans with Friends & Family.

1. Start off strong by separating business from your relationship.

One of the most important things you can do when making a loan with friends or family is to keep it “strictly business”. Making it clear that your loan is separate from your relationship will accomplish two things. (1) This mindset will help protect your relationship in case your loan goes awry. (2) Treating your loan as purely a financial transaction will allow everyone to think more objectively about the loan.

Before starting your loan, we recommend you talk about the prospects of a loan with your friend or family member openly and honestly. Concrete steps need to be taken in order to foster an open conversation about your loan, so for your reading pleasure, we have outlined those steps below:

Create a space to have conversations about the loan. For example, schedule a specific time dedicated to talking about your loan. Depending on who decides to bring up the topic of a loan first, it is best to let the other party know you will take your time thinking about the details of your loan. After seriously considering your thoughts about the loan, set up another discussion with your loved one. Navigating the beginnings of your loan in this order ensures that you are not overwhelmed and that you don’t accidentally agree to something you don’t feel comfortable with.

Ask yourself and the other party of your loan what you both want out of this agreement. Some things you should consider include:

How much money are you willing to lend? How much money are you willing to take? Consider this in the context of your finances as a whole.

Do you want to add an interest rate to your loan? How much interest should be charged?

What would you do if the loan could not be repaid in full?

2. Set expectations early and in writing.

After discussing your loan and answering the above questions, make a formal loan contract. Having your thoughts, discussions, questions, agreements, and contentions in writing is a great way to set the expectations of your loan from the very beginning. Not only will you have a reference point for your loan, but you will also have documentation to look back on in case there is any confusion or disagreement in the future. Upon creating a contract, both the Lender and the Borrower should spend some time looking over the document to make sure they agree with all the clauses & terms before signing. Once signed, both parties should keep a copy of the loan agreement for themselves.

Having all of your loan matters in writing also applies to any changes you want to make to an agreement. For example, if you and your loan counterpart decide that you would like to extend the timeline on the loan, you should make an amendment to your original contract and keep these two documents in the same place.

While a lot of people believe it is a good idea to have a contract, most individuals are afraid to ask for a formal agreement. In situations such as these, using a third-party platform (*hint* Pigeon Loans *hint*) to create an agreement and manage various aspects of the loan is an easy way to have a contract without having to deal with the related challenges.

Having some level of flexibility when dealing with financial matters with someone you trust is important. However, having too much leniency when dealing with matters such as late payments, or underpayments, can quickly turn a stress free loan into a financial nightmare.

If all parties involved in your loan decided to schedule repayments for the 1st of each month, stick to that commitment. If payments become overdue or late you should have a conversation with the other party as soon as possible to rectify this situation. Late payments can set a bad tone for future payments. One late payment may turn into two late payments, and this behavior could continue until all of a sudden payments begin arriving in erratic intervals and are no longer paid in full.

Of course, sometimes the Borrower of any given loan really does need more time to make a payment. In these scenarios, it is best to consider extending the loan timeline. Extending a loan allows the Lender to receive more interest on their Principal and it allots the Borrower more time to pay off their debt. Before signing an extension agreement, you should have a conversation about it, just as you did with the original loan agreement, to make sure everyone is on the same page.

4. Be honest with yourself and trust your instincts.

Lending money is a risk, so you should only lend money that you are comfortable losing. Borrowing money can be a burden, so you should only borrow money if you can take on new debt obligations. Being honest with yourself about what you want out of your loan can be tricky because it means weighing your needs vs your spouse’s, best friend’s, mother’s, or even child’s needs. Trust your instincts and spend some time with your thoughts to figure out what you can and can’t do, as well as what you want to do.

Most importantly, don’t forget to enjoy the loan process. You are either helping out a friend in need or expressing a new level of vulnerability within an already strong relationship. As stressful as it may be, a successful loan can be very rewarding and can provide a lot of financial relief for both parties. So if you are ever in need of a loan, follow these tips and you’ll have peace of mind.

Want to read more related content? Check out some more of our awesome educational pieces below:

Balance Transfers vs Personal Loans: Here Is The Difference

Lending Money? Borrowing Money? Avoid Tax Pitfalls

There are a lot of hurddles and tough conversations to consider if you are attempting to make a loan with a friend or family member.  Follow these quick tips to make your next loan a successful and positive experience for everyone.

4 Essential Tips to Successfully Navigating Loans with Friends & Family

How to loan someone money, maintain your relationship, and get paid back.

When it comes to making a loan with friends or family, there are two extremely important components of a loan that Lenders care about:

The likelihood that the money being given out as a loan will be paid back in full.

The hope of maintaining a good standing relationship with a Borrower after a loan is complete.

When thought of together, these two intangibles are powerful forces within the loan process and often work in conjunction with each other to influence the numerous outcomes of a given loan.

Many of us are aware of this reality, and have even run into a scenario like: your best friend didn’t repay you back a large sum of money which ultimately ended your friendship. Or, in this same experience, the reverse is also true — a relationship falls apart while your significant other is indebted to you, so the chances of you seeing your money again are slim at best. Often times, because of these two factors, lenders who want to support and help their loved ones are left taking on a great level of risk, both financially and relationally.

Now what if I told you there are ways to combat, and maybe even prevent these struggles…

According to a Bankrate 2019 survey, statistics show that nearly 60% of Americans are benevolent lenders when asked to be. When it comes to helping out a friend or family member financially, 3 out of 5 people will sacrifice their own well being to help their loved ones in need. And as you might guess, about 35% of those compassionate supporters were negatively harmed in some way, albeit financial or relational. However, interestingly enough, a caveat exists within this world of lending and borrowing. An additional 35% of surveyors report having experienced no harm at all when it came to making a loan with someone they trust. Very few statistics exist as to what goes into a loan that yields only positive results, but when we think about human nature and an individual’s relationship with money, we can be sure of a couple of things.

Achieving a goal is more attainable when people are held accountable. Analogous to the world of interpersonal loans, when building a new business, entrepreneurs are 65% more likely to succeed in meeting aspirations for themselves when they designate a second or third party dedicated to holding them accountable to their own commitments. In thinking about your relationships and life experiences, we can all recall a time where we accomplished a great achievement and did so because we had a peer, organization, friend, family, or neighbor to hold us accountable over time. In the same way that these moments in our lives were made possible because of an increased sense of accountability, this phenomenon can also translate over to and influence the world of loans when dealing with people you trust.

Aside from the time and effort put into lending money to a loved one, what is the overall cost of making this kind of loan? Expenses to consider might include, legal fees and bookkeeping. Considering the time it might take you to educate yourself on the best lending practices or even the potential tax pitfalls of a new loan, you will have invested a significant amount of your well being into helping out your loved one in their time of need. Reducing all of these costs, whether directly or indirectly, is paramount to increasing the likelihood a loan being repaid. The ideal reality for the world of lending would include a free platform for Lenders to track their money given out, a manner for Lenders to easily protect their loan legally without incurring the costs of formal legal counsel, and a readily accessible source of information on how to best navigate the entire loan process. By creating this ecosystem of tools and resources, the overall cost of making a loan is greatly reduced and as a result of this reality, all parties involved can focus more on maintaining a healthy relationship and repaying their loan on time.

Even though it may seem impossible to create and manage a happy, healthy, and simple loan with your friends and family, there is light at the end of the tunnel. At Pigeon Loans, our easy to use online platform handles all of the little logistics that irritate and ultimately hinder relationships and the loan process as a whole. Our ecosystem, handles payments, reminders & notifications, complicated bank transfers, and the creation of contracts. At little to no cost at all to the Lender, the worry regarding whether or not their loved one will remember their next payment installment is nothing more than a thing of the past. Pigeon Loans acts as a third party, seeking to hold Borrowers accountable for their responsibilities, so Lenders don’t have to text, double text, or even call a forgetful family member about any money still owed. The key to navigating a loan successfully lies within the logistics, and using Pigeon Loans provides lenders with the most comprehensive solution to the pains of an interpersonal loan.

By adding an element of accountability and reducing the indirect and direct costs of making a loan with someone you trust, we believe only good can come out of your next act of financial kindness. So whether you just want to help out your friends, or whether you want to help someone grow their business, structuring and managing your loans through Pigeon Loans is a no brainer. Lenders all over the world are joining our platform each and every day, so why not you?

4 Tips To Successfully Navigating Loans with Friends & Family

A comprehensive guide on how to loan someone money, maintain your relationship, and get paid back - all while helping out someone you know and care about.

Pigeon Loans: A Flight Path for Lenders

Between mortgages, student debt, and credit card purchases, the average American is over $90,000 in debt. Being in debt is stressful. Between keeping up with monthly minimum payments, tracking rising interest rates, and protecting your credit score, it may seem like an impossible task to rid yourself of seemingly insurmountable debt.

Balance transfers and personal loans are two great options to consider when tackling debt or trying to avoid suffocating interest. Here’s why you might need each one: 

If you’re balancing multiple credit card accounts and want to focus on debt management, a balance transfer is a great option to consider (the best balance transfer scenario includes a promotional window with a low interest rate).


If you’re coming up against an uncommon but substantial expense, like a wedding or major home renovation project, a personal loan provides instant access to cash you can use as you see fit.

To understand which is best for you, let’s dive into balance transfers and personal loans a little more.

A balance transfer is a way to manage credit card debt. The goal of a balance transfer is to quickly pay off a balance, especially one that’s hit your credit limit, while avoiding interest. In some scenarios, transfers are made to take advantage of rewards offered by a new card company.

The balance transfer credit card process looks something like this:

A credit card holder with a balance on one or multiple cards seeks out a credit provider offering balance transfers.

They submit the required information to apply for a transfer.

If approved, they review the proposed terms.

Should they decide to move forward on a balance transfer offer, all necessary paperwork is completed.

The transfer takes place and any applicable balance transfer fees are applied to the account.

The new terms take effect and a payment schedule begins.

Balance transfers are an appealing approach to debt consolidation, especially to those stuck under high credit card interest rates. While there are certainly benefits to enjoy, there are also disadvantages to consider when transferring high-interest credit card debt to a new credit card.

The average credit card interest rate is 16.22%. In what is likely its most appealing benefit, many balance transfers offer a promotional window with a 0% interest rate, usually lasting between 12 and 24 months.

Not everyone transfers a balance solely for a low fixed interest rate. Some switch a card’s balance to a new credit provider offering better rewards or enhanced cash back programs. 

If you have more than one credit card, transferring multiple balances to a single account can simplify your personal finance and debt management plan.

If you’re unable to make your payments on time or pay off your entire balance before the introductory period closes, you could end up paying a higher interest rate than your original card included. You could also end up with more debt than you started with if you continue to charge purchases on transferred accounts.

Balance transfers can come at a price. Transfer fees can be as high as 5% of the total amount transferred. Additionally, your credit score can take a hit when applying for a transfer.

If your credit history is less than perfect, you may not be approved to transfer your entire balance. You may also be denied entirely.

This debt management approach isn’t right for everyone. But if you tick most of the boxes below, transferring or consolidating your credit card balances via a balance transfer could be a smart financial decision.

Have a credit card balance with difficult to manage payments and/or high interest rates 

Have good or excellent credit in order to to qualify for 0% interest promotional windows and voided balance transfer fees

Have a cash flow that matches proposed payment terms to ensure balance will be paid in full within promotional window

A personal loan is a one-time cash payment from a lender to a borrower. Terms vary by loan and borrowers may use the money for home renovations, to pay off debt, or for one-time expenses like vacations or weddings. Lenders can be banks, credit unions, or even a friend or family member. 

A personal loan process often looks like this:

A borrower seeks out and applies with a lender.

Terms are discussed, negotiated, and ultimately agreed upon.

The lender distributes the agreed loan amount to the borrower, enacting the loan.

The borrower makes payments, with or without interest, until the life of the loan has expired.

Personal loans are a type of installment loan. They offer several advantages, making them an option for just about anyone in need of a quick line of credit. But there’s also fine print to be aware of. 

Personal loans are flexible and versatile. Borrowers with good credit have a multitude of lender options. This means they can find a loan with terms that match their needs, like a low introductory APR. The funds can also be used at their discretion.

Personal loans offer lower interest rates compared to other types of loans. For example the average personal loan interest rate in 2021 is as low as 9.3% while used car APRs for the same survey period can be as high as 21.07%.  

Personal loans are simple to understand. Once a borrower understands the total amount being loaned, when it needs to be repaid by, and what the origination fee and interest rate are, there are very few risks for surprises for borrowers.

Personal loans can come with higher payments and shorter repayment windows. 

Personal loans can be dangerous for over-spenders. The cash can feel like a windfall while it’s being spent and leave borrowers unprepared for payment terms when the time comes.

Personal loans are not ideal for those with poor credit. If you have a low credit score and are still approved for a personal loan, you can expect an exceptionally high interest rate. This is one reason why securing a personal loan from friends or family members is often preferred over a financial institution.

Personal loans are a great way to secure cash at a low-interest rate without the temptations of a credit card. If you meet the following criteria, a personal loan could be for you.

A strong candidate for a personal loan typically has these qualities:

Needs cash for a big purchase or to pay off different types of debt

Has good credit to avoid high interest rates

Has the cash flow to meet financial obligations before repayment period ends

In addition to having a willing lender, borrowers should also make sure their loan is taking place through a secure platform. For example, Pigeon Loans (the platform you are reading this article on) is a software tool that enables interpersonal loans, so anyone can get a loan from a friend or family member with ease, trust, and security.

Balance Transfers vs. Personal Loans - Which Is Right for You?

You know that your finances could benefit from either a balance transfer or a personal loan. The question is, which is the better option? 

The answer depends on your unique financial situation. A meeting with a financial advisor can be beneficial (in fact, we highly recommend it because #wearenotfinancialadvisors). But if you’re searching for instant clarification, here are a few scenarios to consider.

As long as you crunch all the numbers (i.e., not just your monthly payment but total cost of repaying the transfer/loan, including fees, interest, and repayment terms) and understand what you’re agreeing to (i.e., the fine print), you should have all the information you need to make an informed decision between a balance transfer and personal loan. 

It goes without saying that all available options should be explored when trying to pay down debt or tackle a big expense. Remember, financial institutions aren’t your only resource. There are safe ways to borrow from friends and family that can be more beneficial than going with a corporation.

Both balance transfers and personal loans can have a positive impact on your financial situation, especially if you’re trying to pay off student loans or tackle a large amount of debt. They’re even more effective when they offer an interest-free promotional period or a low annual percentage rate. If you’ve been discussing the possibility of taking out a personal loan from a friend or family member, see how we can help simplify and secure the process of borrowing from your loved ones.

Are you trying to manage credit card debt, or build your financial health overall? Learn how to choose between a balance transfer or personal loan.

Balance Transfers vs Personal Loans: Here Is the Difference

How to make tax-savvy loans with family, friends, and loved ones.

This article was written purely for educational purposes, this does not constitute legal, or financial advice. Consult your lawyer, tax, or financial advisor before making any decisions based on the information you’ve read in this post. The tips outlined below are applicable to the United States, Internal Revenue Service.

Everything we do seems to have some tax implications. Loans between family, friends, or loved ones are no different. If you are thinking about lending your friend money to help them buy their first car you might want to read this article before charging 0 percent interest rate on that loan. We have experience making informal & unsecured loans, so we have compiled some tips you should think about before making your next loan:

1. The $10,000 USD Rule (AKA the De Minimis Exception)

This is the magic number. The IRS will consider a loan that is smaller than $10,000 USD as a “small” loan as long as the Borrower doesn’t use any of the money from the loan to generate additional income. Generally speaking, “small” loans will be subject to less scrutiny from the IRS, and the following rules that we outline in this article will likely not apply to them. So, if you want to lend money to loved ones, keeping it below $10,000 will help avoid tax complications and IRS headaches.

Straight from the source; check out the US Tax Code 26 USC § 7872.

2. Charge an Interest Rate Equal to or Above the Applicable Federal Rate.

Things get a little trickier when creating loans larger than $10,000 USD. At this point, loans above this amount are no longer considered “small” by the IRS. Above the $10,000 USD threshold, you want to make sure you are structuring your loan properly. One way to do this is to charge an interest rate on your loan that is equal to, or larger than the IRS-approved applicable federal rate (AFR) set during the month in which your loan agreement started. It gets a little complicated so we’ve broken it down below:

What is the AFR and which rate do I choose for my preferred interest ?

Every month, the US government establishes a list of minimum interest rates for debt instruments. Based on the context of the US economy at that time, these predetermined rates are meant to reflect a fair market rate.

AFRs are broken down into short, mid, and long term rates, so you should pick the rates that align best with the term length of your intended loan. Short term rates should be used when making a loan that will be repaid in three years or less. Mid term rates should be used when making a loan that will last between three to nine years long. Long term rates should be referenced for loan agreements that will be longer than nine years total.

Straight from the Source. Monthly Applicable Federal Rates (AFRs) can be found here.

It is important to note that while AFRs are changed monthly, the only rate that is applicable to your loan is the rate of interest that is set during the month your loan agreement is signed. For example, if in August, the mid term AFR interest rate is 0.41%, and in August you agree to loan Becky $15,000 USD over 4 years, she should owe you at least a 0.41% interest rate on that loan term.

Why is charging an interest rate a good idea from the Lender’s perspective?

If your loan exceeds $10,000 USD, then the IRS will expect you to have an interest rate, regardless of whether you actually have one in place. As the Lender, the IRS could end up taxing you on an interest rate that you could have charged but did not, also known as “imputed interest”. By taxing the Lender on an interest rate they did not collect, the Lender would end up unnecessarily losing money with their loan.

Why is paying an interest rate a good idea from the Borrower’s perspective?

Making a loan in which you do not pay an interest rate, or you pay an interest rate below the respective AFR, would categorize your loan as a “Gift Loan” or “Below-Market Loan”. As a result of your actions, the IRS will calculate the difference between the AFR and the interest rate you charged, apply that to your loan, and consider this discrepancy in funds a “gift” from the Lender to the Borrower. “Gifts” can then be taxed, and the Borrower will have to pay the applicable tax rate. If however, you apply at least the respective AFR to your loan, you will not have to worry about this headache.

Straight from the Source.Gift Tax Guidance can be found here.

3. For Any Loan, Have the Appropriate Documentation

This is the most important action you can take to avoid getting into tax trouble. Regardless of the size of your loan, you will want to have a comprehensive loan agreement, agreed upon and signed by both parties, as well as proper documentation of your timely payments. This is important not only because you have to be able to prove you have a high enough interest rate, but also because if you forgive the loan, you might have to prove that the loan forgiveness was not planned from the start.

Of course, the IRS knows that loan forgiveness can happen, but it will only allow for loan forgiveness as long as it is proved to be unexpected. In other words, the IRS does not want you to give Becky $30,000 USD as a present and avoid gift taxes by making a loan which you will forgive anyways.

Having a legal signed loan agreement, as well as documentation of your payments, is a great way to show that the loan was legitimate. Luckily, Pigeon Loans makes it very easy for you to get a signed agreement that will help steer you clear of tax trouble.

There's quite a few tax consequences to consider when lending or borrowing money. Whether it be from friends or family, make sure you know the laws in your neighborhood about these transactions.

Learn how to navigate Usury Laws in the US

This article was written purely for educational purposes, the information depicted in this piece does not constitute legal, or financial advice. Consult your lawyer, tax, or financial advisor before making any decisions based on the information you’ve read in this post. The tips outlined below are applicable to the United States, Internal Revenue Service.

Maybe you are like most people and tend to leave complicated legal matters to the experts. We tend to think of ourselves as ‘experts’ in our own right, but if you are one of the few you have seriously looked into the laws surrounding loans with friends and family members, you might have stumbled upon the scary topic of usury laws. It is a big topic, especially in the United States, and it is often followed by fear-inducing sentences threatening fines, sanctions, or even jail time. However, we have found that once you get a good grasp on what usury laws are, and what they mean, it is really easy to navigate these regulations! Knowing this, we have put together this short guide walking you through what usury laws mean for you.

Usury (yoo’zhe-ree) is, as defined by Dictionary.com, as:

The practice of lending money and charging the borrower interest, especially at an exorbitant or illegally high rate.

An excessive or illegally high rate of interest charged on borrowed money.

Archaic. Interest charged or paid on a loan.

Straight from the source; check out the Usury definition at Dictionary.com.

When a lender charges an unreasonable or illegal rate of interest, it’s called usury. Broadly speaking, usury laws are in place to stop lenders from charging a ridiculously high interest rate to their borrowers and exist to enforce fair lending practices. In fact, regulations similar to modern-day usury laws have existed for thousands of years, and across many cultures. (Plato, Hammurabi, and even Queen Elizabeth held their own views on usury laws!).

The most common application of restrictions around usury has been in enforcing a legal limit to what a lender is allowed to charge a borrower in interest on a debt instrument. Cultures around the word enact these kinds of restrictions to prevent predatory lending. Without these laws financial institutions could charge people in need something like 83.74% interest on a loan, and we’ve all been in need once or twice in our lives, so we should be thankful these laws are in place.

How are Usury Laws enforced in the United States?

While there is some federal verbiage about usurious lending, most of the details about complications exist at the state level. Delaware has different laws than California, and Alaskan lending differs from Wyoming.

At the federal level, most often, if you exceed the legal interest rate, your interest is essentially nullified.

Straight from the source: 12 U.S. Code § 86 — Usurious interest; penalty for taking; limitations

However, the limit which is specified in the above U.S. code is defined, interpreted, enforced independently by most states. For example, Massachusetts caps the interest rate at 6%, while in DC you can go up to a 24% interest rate as long as you have your agreement in writing.

As individuals, depending on your state of residence, you may be subject to usury laws. This means you have to be sure you understand what your interest rate limit is, and what the existing penalties and exceptions are if you pass the interest rate limit. All in all, we know that most people are perfect angels and only charge their friends and family super low interest rates, but for the few opportunistic people out there, make sure you do your homework on usury.

If you are making a loan in the United States, you can easily check your state’s applicable laws and regulations on this website.

Why can’t I charge a 0% interest rate to avoid usurious loans altogether?

Charging a 0% interest rate would allow you to avoid the complications associated with usury laws. However, you might want to read up on the tax implications for doing so before leaving the borrower free of interest obligations.

We hope this short guide helped you gain a firmer understanding of usury laws, and how they might apply to you. Remember that starting a loan with someone can be stressful, so make sure you get all your questions answered before jumping into it!

Borrowing money has a cost, but charging far more than is reasonable constitutes usury. Learn why Queen Elizabeth and Plato discouraged usury and how you can avoid it.

Loan Tips and Tricks