Loaning money to a member of your family may seem like the right thing to do. After all, what could go wrong? Your son, sister, father, or cousin really needs your help, and there's no question that he or she will pay you back.

Or is there? Lending money to anyone, even someone you trust, is risky. No matter how well-intentioned the borrower is, there's always the chance that he or she won't be able to pay you back, or will prioritize other debts above yours.

When deciding, consider these tips:

• Don't lend money you can't afford to lose. If you make the loan, will you still be able to meet your savings goals? If the loan isn't paid back, will the financial effect be small or large?
• Avoid becoming an ATM. Relatives (especially your children) may ask you for a loan because it's convenient, but they may be able to obtain the money easily elsewhere. Explore other options first.
• Think through the emotional consequences. Will you be able to forgive and forget if loan payments are missed or if the loan isn't paid in full? How hurt will you be if your relative freely spends money (on a vacation, for example) before paying you back?

Set the Terms
If you decide to go through with the loan, make sure expectations on both sides are clear. Discuss all terms and conditions and consider putting them in writing. You may even want to draft a formal loan agreement. At the very least, settle on the amount of each loan payment and the date by which the loan must be paid in full. Open-ended obligations often lead to misunderstandings.

On the other hand, don't feel guilty if you decide to turn down your family member's loan request. It's hard to say no, but it's still easier than repairing a damaged relationship if things don't work out.