Top Things to Remember When Lending Money to Friends and Family

Lending Money to Friends

Lending money to friends and family members can be more complicated than the usual lending of money of lending companies and banks. It’s purely business with the latter, but when it comes to dealing with people you’re close to, there’s a high possibility that feelings would be involved. While you may want to help your loved ones financially if you have the chance, you may also be worried about the consequences that could happen, which could affect your relationship. Some of the things that could possibly happen is that they may not be able to pay the money as promised or they may keep going to you to get more cash. Here are some of the things to remember if a friend or family member is borrowing money from you.

It’s Okay to Say No

Consider the person you’re dealing with. If you have extra cash and someone really needs it for an important reason and you know he would pay you back, then it may not be that bad to lend. However, if the person borrowing doesn’t have a good history of paying back debts and he spends his money in vices or bad stuffs, it would be okay to say no.

Talk About the Terms and Put It in Writing

Put to Writing

You may or may not put an interest on the loan. It’s really up to you to decide. What matters is that whatever your terms are, you lay them out before giving the money and make sure that everything is clear and understood by both parties. The advantage of adding interest is that they are more likely to pay you back as soon as possible as they want to avoid growing the interest. However, if you know that your friend or loved one just really needs it and you know that he would prioritize paying it back, it may also be fine not to put an interest. Write whatever you agreed upon, including the payment schedules and sign. You and the borrower must have a copy so they too will be reminded of the money they owe you.

Lend Only the Money That You Can Afford to Lose

If you don’t have the amount that the borrower needs, you don’t have to risk your own budget, sell things or apply for a loan of your own just to give them the money they need. Lend only the money that you can lend them, which wouldn’t affect your personal finances. Moreover, lend only the amount that you could take losing. Remember, even if you know the person pretty well, there would always be the risk of not being paid. If that happens, you may feel sorry about the money lost, but at least, it wouldn’t affect your finances that much.

Make It Clear That You Will Only Do This Once

It may be uncomfortable but it’s something that you also need to clear up. If you decide to lend money, let them know that it’s a one-time deal and you would only be doing it for that time. The problem is that other people would just depend on you and go to you whenever they need money if you don’t set boundaries.

Have you experienced lending money to a friend or family member? Share your thoughts or experience with us.

Photo Attribution:

Featured and 1st image by Gregory F. Maxwell <[email protected]> PGP:0xB0413BFA (By uploader) [GFDL 1.2 (], via Wikimedia Commons

2nd image by Government of Thailand (Flickr) [CC BY 2.0 (], via Wikimedia Commons