May 132011
 

These signs will help you know if it’s smart to loan money to someone you’re close to – a friend, partner, family member, or coworker.

I wrote this because a reader said…

“People who do not lend money to friends are selfish, period,” says E. on Should You Lend Money to Family Members? Warnings and Tips. “If it is a short term financial loan and the friend is responsible. What kind of a selfish world do we live in where people will not help a friend? And also where friends don’t pay back loans? All this talk about not loaning money to friends shows lack of integrity and trust in the human relationship.”

If you’re on the same page as E – you think it’s always smart to loan money to someone you’re close to – then make sure you protect yourself! A book like The Complete Idiot’s Guide to Person-to-Person Lending will help.

Signs It’s Not Smart to Loan Money to Someone You’re Close to

And, here are a few signs you shouldn’t lend money to a loved one…

Your gut instinct

Put aside the thoughts of “friends help friends no matter what the cost” and “she’s my friend, I want to help her” and “she’ll lose her house if I don’t loan her money.” Take a moment to listen to your gut. Do you trust this person with money matters? Is she usually financially responsible? Sit for 15 minutes and reflect on her personality, lifestyle, and habits. What is your gut telling you about lending money to this person? Look for feelings that give you a red light, green light, or yellow light.

Bad credit rating

I watch Judge Marilyn Milian as much as I can; she often hears cases that involve friends and family members loaning money and not getting repaid. One of the warning signs – signs it’s not smart to lend money – is when a person has a bad credit score. “If he can’t pay his bills, how can he pay back the money he owes you?” asks Judge Marilyn. Maybe some friends will blow off their other bills to pay back your loan…but it’s a risk on your part.

Financial debt to other family members or friends

You aren’t helping a loved one if you have to keep helping her “solve” the same problem over and over. If the person you’re close to already has outstanding loans to other people, then it’s probably not smart to “throw good money after bad.” One of my readers commented that her husband’s friend just goes from person to person, borrowing a hundred bucks here, five hundred bucks there. Another reader said he recently started saying no when someone he’s very close to – his own father – kept asking for money. The dad, who was addicted to gambling, just turned to other family members for money loans.

Guilt and manipulation

Here’s what another reader said about loaning money: “I asked a good friend for a short term loan for only 14 days that would help me avoid over $1,000 in penalties and interest on a unexpected tax bill. I’d have the money to pay back for sure in 14 days. The person has more then three times what I needed sitting in a liquid account, making very little interest. I even offered to pay much more interest for the 14 days. They said it’s not a matter of trust, they just don’t want to do it and don’t want to put that kind of strain on our friendship. If the tables were turned, I would’ve loaned them the money.”

The problem with this logic – “I would loan them money, so they should loan me money” – is that we can’t expect people to do what we would do! I think that’s guilt and manipulation. It’s not fair or reasonable to expect someone you’re close to to act in the exact same way you would.

If someone has asked you for a loan, you may find How Do I Help Family With Money Problems? helpful.

Have you loaned money to someone you’re close to…and did you regret it? Comments welcome below!

laurie pawlik kienlenI'm Laurie Pawlik-Kienlen - bookworm, travel bug, flute player, writer, blogger, warrior princess. :-) My husband and I live in Vancouver, Canada with our cat and dogs.

Are you happy? My Grade 10 Social Studies teacher always asked me that. And I am happy, despite a hard childhood (schizophrenic mom, no dad, foster homes), infertility, an eating disorder, and a chronic illness. The source of my peace and joy is God; I'm a Christian. Where do you find peace?

I welcome your big and little comments below, about big or little things. I can't give you advice, but writing can give you clarity and insight.

In peace and passion...Laurie

  7 Responses to “Signs It’s Not Smart to Loan Money to Someone You’re Close to”

  1. My husband and I loaned $800 to my sister a little over a year ago… with the understanding she would pay us back when she starts working again, and haven’t received anything back from her. She hasn’t even attempted to pay a small amount and that is after we have asked her several times. Then a few months ago her vehicle broke down and she asked to borrow another $150 to get it fixed, we loaned that to her with the understanding she would pay it back and some of the $800 as soon as she received her PERS check within the next month. She has the PERS check now and is only wanting to give us the $150 back. She had been out of work for a while and that is the whole reason we loaned the money to her in the first place but now she is working and received $1700 from her PERS check. Am I being unreasonable to ask for this money? I have gone out of my way to help her anytime she needs it and at this point I just feel used and have been left to wonder if I really want a relationship with someone (family member or not) that would do this to their own sister!

  2. Even on my side don’t ever give the money to your lover,sorry this is a very biggest problem i ever had in my life,as sometimes u don’t stay together okay he’s coming to you borrow the money and left for couple of days,not coming back,there he is comes again two days after two days there he is he got another problem,he need the money from you when it’s time for the money to come back there’s the stories,no ways i’m sorry to give the lover your money you work for wake up in the morning to go work come back at six’oclock doing that for the f***ck man who is using you for your money no shame sorry!!!!!Even to a woman don’t trust anyone on money side you can love them all but don’t trust any….

  3. Dear Brandy,

    Thank you for sharing this part of your life here – your question is a great one!

    I think affection can lead us to make the wrong decisions. That is, I think we know it’s not smart to loan money to people who are financially bankrupt (because they obviously have a history of mismanaging their money), but our love or affection for them can affect our ability to make a good decision.

    Your gut is telling you not to loan money to your boyfriend because it’s a very BAD idea to give him money! Even if he signs over the motorcycle to you until he’s paid back every cent, it’s still a bad idea. Do you really want a $10,000 motorcycle?

    My short answer is that you should not loan him the money.

    My long answer is in this article, which I wrote for you:

    When Your Boyfriend Asks to Borrow Money and Your Gut Says No

    In the article, I give you a suggestion on how to tell him no without damaging your relationship.

    I hope it helps, and welcome your thoughts here or there. Let me know what you decide to do!

    Blessings,
    Laurie

  4. My boyfriend, who is 65, is preparing to retire. Part of his preparation will be filing for bankruptcy and walking away from his home/mortgage. He own a really nice motorcycyle which we both enjoy. He has asked me to buy his bike in order to protect it from the bankruptcy. This purchase would equate to my paying him 10,000.00 and then making payments of 250./mo for sometime. We have know each other for about 8 months now and I really do like him a lot, but this request has made me uncomfortable. He is a very generous person, but he is not good with money as evidenced by his need to file for bankruptcy at this stage of the game. I’m retired, as well and on a fixed income, this is a lot of money for me. I currently carry 11,000.00 in debt that I am currently trying very hard to pay down. I also have a savings account with about 12,00.00 in it at present. Though I do have stock I could sell if need be, I don’t feel that is very wise of me to sell any stock at this time. My problem is that I do think the world of him, but his mismanagement of his own money make me very uncomfortable in trustuing his ability to repay me. Do I go with my gut feeling? How would I explain my reasoning to him without hurting our relationship?

  5. I’ve loaned money to family and friends as well as a business partner. The sister and the friend never came through with their word on paying it back. The business partner ended up being a con. So my hard lessons have taught me that if you lend money you might as well count on never getting it back!

  6. Hi Sally,

    That’s great that you trust your sister, that you can loan money to someone you’re so close to! Not everyone is as lucky as you :-)

    Blessings,
    Laurie

  7. I lend money to my sister all the time, and she always pays me back. What’s the big deal?