3 Reasons You Should NEVER Lend Money To Friends & Family

In the previous thread, I started a discussion about why you should not borrow money from family and friends. Well, it turns out that some people in your close circle will actually miss the point, forget about tact and ask you to lend them some money. Interestingly, Shakespeare has an interesting perspective to lending or borrowing money when he said “Neither a borrower nor a lender be… for a loan oft loses both itself and friend” inHamlet.

Nonetheless, it might be hard to take the Shakespearean advice on loans when the people asking you for the loan are people that you actually care about and you have reasons to believe that need that money. In this piece, I’ll explore 3 reasons you’ll save your money by not lending money to family and friends and I’ll give some insights on how to maintain the relationship if you do decide to lend them money.

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1. Loans to Family and Friends Lack Formal Agreements

A loan application and approval scenario between friends and family usually goes along the lines of,

John: Hey Peter, what’s good on your end

Peter: I’m good bro

John: Can I get R500 from you? something came up and I’m short of cash

Peter: R500? Alrighty

John: Thanks Bro. Catch Ya Later

Loans to family and friends are usually open ended without formal agreements on how much was borrowed, repayment terms, and a due date for the final repayment. However, the fact that they are open-ended means that the borrower and lender are both in a state of uncertainty about when the money should be repaid.

You may want to consider having a frank discussion about a repayment schedule and about when you’ll expect them to make the final repayment for the loan.

2. Asking for the Money Might be Difficult

When you lend money to a friend or family member, it might be very hard to approach them to ask about when they’ll repay you. For one, you won’t want to come off as being overly concerned about money and secondly, you won’t want the borrower to feel bad.

However, you can make gentle references to the loan or something that they did with the loan without asking direct questions about when you’ll be repaid.

3. Such Loans Don’t Usually Solve the Underlying Problem

Many at times, when people ask you for a loan, it might betray an underlying problem that is existentially different from the lack of money. Maybe they have money-management issues, a business that has hit rough waters, a gambling addiction or even some unpaid debts to loan sharks. Lending them the money is such an instance could actually be a short-term solution to a long-term problem.

Hence, it is not out of place to ask questions about why they need the money before you agree to lend them the money. Sometimes all they need is a word of advice and not a loan.

How to Maintain Your Relationship if You Decide to Lend them Money

1. The most important point is not to lend money to family and friends unless you are prepared to forego the money or the friendship.

2. Since, family relationships and friendships are more important than money, you should be prepared to forgo the money. If you MUST lend them money; then you should lend them only an amount of money that you can comfortably forego if they do not repay the loan.

3. Since, you are prepared to forego the money if they don’t pay back, you should diffuse any awkwardness that can occur because you lent them money. You can eliminate such awkwardness by giving them the money as a “GIFT” without any need for repayment. That way, they won’t feel indebted to you, there won’t be awkward discussions about the loan, you won’t be disappointed when they don’t pay back, and they might take the hint and not ask you for a loan again.

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