Should You Lend Money to Friends?

Published: May 28, 2014 | Updated: July 3, 2020 | Posted by: Moneymax | Lifestyle, Personal Finance



The short answer is “Yes, if you can.” However, be mindful of the following consequences. When a friend or a family member needs to borrow money from you, the feeling can be overwhelming especially if you know that you can help. But if things do not go as planned; payments are delayed and when you simply cannot get your money back, your relationship with that person might be at risk. Lending money to friends can be unmanageable and cumbersome.
If they come to you now to borrow money, here’s what you should do:

Ask if they need your help

It took them a lot of pride to come to you even if you’re friends and related to each other. It will take them even more pride to ask. You don’t like more of that so take the chance to ask what they need. Be sure that there is a sense of necessity and urgency in the situation.

Offer alternatives

As much as possible, don’t lend money. Instead, come up with a great alternative like a legwork to something or some groceries, depending on what they need. You can also provide them with income generating opportunities that you know of. Explain the burden of having a loan.

Be mutually clear about your terms

Now, if you’re left with no other choice but to lend, treat it as a formal business transaction. Do not let it get in the way of your friendship. Tell them this is a one-time thing. Yes, because you’re friends. Set your terms whether you allow them to pay it back in installment basis or paychecks. Clearly define your deal’s terms and conditions.

Use your head – and your heart

If you come to think of it, it’s more beneficial to both parties if individuals will lend each other instead of applying in the banks. The borrower can pay less interest while the lender can earn higher interest compared when you put your money in the savings account. That is only if the borrower repays on the agreed deal. You know friends and family members who are brilliant on financial decisions; you need to use that knowledge if you’re going to lend money. Otherwise, your loan may turn to a gift, whether you want it or not.

Don’t let others know

Nobody needs to know. Agree that it’s between just the two of you. It will protect your friend from rumors and you, the lender, that you allow these things. Gossips will not end well for both of you.

Think of it as a gift

Don’t treat it as a loan, but a donation. Don’t expect them to pay it back. Or repay it right away. Really. If you’re thinking they will because you’re friends and they won’t break the deal, you could be wrong. They’re also thinking it’s okay if they won’t repay or repay right away – again, because you’re friends.
It’s always a different story when you think of lending money to your friends unlike with people you barely know. Agree?
Share your experience on the comment box!