Tips for Lending Money to Friends or Family Members
These tips for lending money to friends or family members are from my personal experience, and from months of watching Judge Marilyn render verdicts on The People’s Court. I had to sue a once-close friend so she would repay her loan – and I hope you learn from my mistake!
Before the tips, a quip:
“Be careful about lending a friend money. It may damage his memory.” – unknown.
Memory hiccups are normal in everyday life, and practically guaranteed when it comes to loan terms and repayments! For more info on money, click on Dave Ramsey’s The Total Money Makeover: A Proven Plan for Financial Fitness. And, read on for my tips for lending money to friends or family members…
Tips for Lending Money to Friends or Family Members
1. Ask why they need the money. Before you loan money, ask why your “peeps” need it! This may help you decide whether or not you should lend the money in the first place. Only lend money for vital reasons: paying the rent, buying food, paying bills, taking care of the children’s needs. Never loan money to friends or family members for plastic surgery, vacations, or other luxuries.
2. Be “mean” – and draw up a contract. Even just thinking about a contract or signed agreement raises questions about trust, relationships, and suspicions – but you have to get it in writing. A moment of discomfort while everyone agrees on the loan terms and signs the contract is much better than not remembering how much money you loaned to your friends or family members later! You don’t want to get stuck with your own bad debt later.
3. Put everything in the contract. This tip for lending money to friends or family members involves being very specific:
- How much money you’re loaning
- Whether you’ll be repaid in full or with a payment plan
- The dates of the loan repayment or payment schedule
- What will happen if your friend or family member doesn’t pay the loan on time
- What – if anything – you’ll take in lieu of payment (a car, housekeeping or renovation services, etc)
4. Remember: email and text messages are legally binding contracts. You can loan money to friends and family members in different countries, and you don’t need their signature on the loan agreement. Make sure you describe the terms of the loan in your email or text message – and make double sure that they respond with an email or text message agreeing to the terms.
4. Get a witness to sign your contract. If you have a contract signed by both parties, you don’t need a witness…but it can’t hurt! If you should have to sue your friend or family member for the loan repayment, a witness can be valuable in helping you win your case.
Do you have any tips for lending money to friends or family members? I welcome your big and little thoughts below!
Do you have a poor credit report? Sky Blue Credit Repair is an awesome program that helps with credit repair, including credit bureau disputes, debt validation, and comprehensive counseling services. This program is ideal for anyone interested in real and lasting credit improvement.
Comment by Laurie PK on 3 August 2009:
I asked lawyer and Dave Ramsey certified counselor Michael Moebes about suing friends or family members when you loan them money, but they don’t repay it.
Here’s what he said:
“It’s hard for me to recommend that anyone loan friends or family money, especially if there might be a possible lawsuit that results! Sure, you can sue them, and I always think it’s a good idea to have a written contract, even when a verbal one is sufficient (the nature of the agreement, ie, duration, whether it’s for goods v. services, dollar amount at stake, etc. will determine whether it has to be in writing).
The problem with being in debt to folks you know and see regularly is that you won’t be able to very well enjoy the money you have. If your friend or family lives nearby, you’ll feel like you have to conceal any expenditures you make (eating out, trips, new clothes, hired help in the yard, etc.) if you owe them money and are having trouble paying. Is that an enviable position? No. It sucks. Feeling guilty about paying for basic needs is never a good feeling.
Even if your family lives out of town, don’t you think Thanksgiving turkey is going to taste a little worse if you know you owe the cook a few thousand dollars? Won’t it strain relations with your in-laws?
If you have to sue, blame someone else. Say your wife is making you pursue the money, your landlord, your kids, your boss. Don’t say, “I’m pissed off at you for spending all your coin at the dog track when you owe me money. See you in court!” It won’t be good.”
There you have it — it’s best not to lend money to friends or family members…but if you do, make sure you have a written, signed agreement!
Comment by Karl on 17 January 2010:
How should I feel when I asked a good friend for a very short term loan for only 14 days which would help me avoid over $1,000.00 in penalties and interest on a unexpected tax bill? I will have the money coming for sure to give back in 14 days which was confirmed. The person has more then 3 times what I needed sitting in a liquid account making very little interest which I offered to pay them much more interest for the 14 days. They said it’s not a matter of trust but they just don’t want to do it. I’m struggling wondering if they would of or if they have ever loaned to other friends. I feel better thinking they haven’t. Response was, no I don’t want to put that kind of strain on our friendship. I’m thinking it has strained the relationship by not loaning me. I wish I would have never asked. I just thought it was not much to ask especially since it was not asking for long term loan but 14 days. I’m trying not to take it personal but its hard. I know if the table where turned I am sure I would have loaned them the money.
Comment by Laurie Pawlik-Kienlen on 18 January 2010:
Hi Karl,
I’m sorry your friend refused to lend you the money, and I believe you’d lend it to him if he asked!
However, part of friendship is not just asking for favors…it’s accepting our friends’ response when we ask for help. If your friend doesn’t feel like he can loan you money without straining your friendship, then you need to respect that.
I know it took alot of courage for you to ask to borrow the money, and I wish he could’ve helped. But, you can’t expect people to behave the way YOU would behave…because we all do what we think is right.
You said you’re trying not to take it personally, and I’m glad. And once you figure out your financial problems, this may not seem like such a big deal…and your feelings towards your friend will return back to normal.
I hope this helps, and that your money problems are resolved soon.
Blessings,
Laurie