Potential familial lenders need to be willing to judge the borrower's ability to repay before shelling out the cash, but in the cases when it's done right, lenders may find their loan repaid at interest rates that exceed the current return of, say, a money-market fund.

        Nationwide, an estimated $65 billion is loaned between family and friends, according to CircleLending, an online financial-service company that manages and services personal loans. "When unemployment numbers go up and people start tightening their wallets, we see more lending occurring between family and friends," said Craig Venezia, CircleLending's vice president of marketing. The company's loan volume has grown by about 25 percent quarterly, to more than $3 million now, Venezia said.

        With the nationwide default rate on person-to-person debt estimated at 14 percent, family members and friends who are tapped for money should consider their response carefully before agreeing to lend.

        Perhaps even more important than the money at stake is the risk that the relationship itself may be tested. "How are you going to feel if they can't pay it off?" said James H. Braziel, a certified financial planner based in Chico, Calif. "It puts extreme strain on the relationship."

Careful Assessment

        To better the chances of making a successful person-to-person loan, potential lenders should find out exactly what kind of debt it is, and question the borrower as a professional lender would, said Mark Oleson, assistant professor in human development and family studies, and director of the Financial Counseling Clinic, at Iowa State University in Ames.

For instance, with credit-card debt, ask "how did you accumulate it, how much do you have, do you have additional debt, are you going to be able pay me, how much are you going to be able pay me?" he said.

If the answers to your questions reveal someone in over his or her head, and you're likely to never see the money again, you have two options, experts said.

Consider offering a gift instead of a loan -- or just say no. "Too often I encounter people who are dysfunctional with money going from handout to handout," said Michael Kidwell, vice president and co-founder of Myvesta.org, a nonprofit consumer education organization.

"If you're not careful to look for the warning signs, you could be fostering someone's negative money behaviors. You could be damaging someone," he said. Those warning signs include previous bankruptcies or a recurring problem with living beyond their means -- such as purchasing a new car or TV when they're still struggling with debt, he said.

At the other end of the spectrum, a borrower seeking help with buying a home or expanding a business may offer the lender an opportunity for greater return than a low-interest-rate money market fund or other savings vehicle.

For instance, assuming "that a lender could be promised a 6 percent return on their money over three years, it's a good source of income," said Ira Bryck, director of the University of Massachusetts's Family Business Center, which helps family-run businesses succeed.

"It's a good time to lend money if you think you're going to get it back," he said. But, "if you don't have faith in the idea, you should consider that you're giving money to family members. There are an astonishingly high number of these sorts of loans that are not repaid and relationships are ruined, including between nuclear family members."

Document, Document

Once the borrower has satisfied your initial questions, draw up a document with the loan terms. "Set up an amortization schedule, and a payment schedule and draw up a note, just as you would with any other loan," said Susan Freed, a certified financial planner based in Chevy Chase, Md.

CircleLending will draw up documents and administer the loan for a set-up fee ranging from $49 to $500, depending on the size of the loan, plus a service fee, for a service that includes electronic fund transfers.

Don't forget the taxman in your documentation. If you make a loan, the IRS will expect you to pay tax on the interest you collect. If no interest is received, you've made a gift, not a loan, and the dollar amount will either fall under the $11,000 annual gift-tax exclusion limit, or your gift could be affected by taxes.

Beyond the Financial

Sometimes, despite careful planning and nary a late payment, simply the fact there is an outstanding loan can change personal relationships, experts said.

"Sadly, it ends up many times that it's the borrower who's uncomfortable with the arrangement," Braziel said. The borrower may distance himself from the lender, because the loan reminds him that "I can't cut it, I need your help," Braziel said.

Some advisers go against pure financial advice and warn of these psychological repercussions. While a financial counselor would recommend borrowing from a friend or relative because of better terms, Oleson said, "you may rather borrow it from a bank at 8 or 10 percent just because of the fact that it won't enter into your relationship. For some people, that's going to be more important than the financial benefit."