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!