Lending money to friends or family members is generally considered a recipe for disaster. If (or when) things go wrong, what was once a strong relationship may go completely sour.
Why You Should Avoid Giving Loans
First of all, most people who lend money to family and friends do it very informally. This means there are no written terms, no timelines for repayment, and no end-goals. The lack of expectations leaves both parties wondering what is really going on and it’s usually the lender who cares more.
Lending money can create uncertainty in your own life, especially if the loan is significant. Can you imagine lending a large chunk of money and then having to put off buying a new car or something else you really needed simply because you aren’t sure when the money will be repaid?
It becomes difficult to ask a borrower to return money after time. You may be afraid of making the borrower feel awkward or as if you are on the attack. Confusion and hurt feelings are very common. Having a loan hanging over your heads can also make being together in social situations very uncomfortable and awkward, especially if other people know about the loan.
Rules for Dealing with Money and Friends
Is someone you know really in a bind? If you really must give a loan, make sure you have written terms prepared. Make copies so that you can both sign and agree. This will make any future dealings part of your business arrangement and will make it easier to keep the loan separate from your personal life.
Make it your habit to say no. It may seem mean, but be clear. You can say you simply don’t have extra in your budget. If the person has borrowed and not repaid before, be honest and say you simply can’t do it again.
Finally, as a golden rule of thumb, don’t let money you can’t afford to have back. Consider whether or not you can afford to gift the money away – and do so if you can. You may or may not receive repayment, but you and the borrower (or recipient) won’t feel bad or awkward if that never happens.