Friends Asking For a Loan? Learn How to Play Safe with these Expert Tips

Advisor Written by: Sijda July 11, 2020

Money, at times, becomes a source of strife among relatives and friends, hence financial experts will mostly advise you to avoid lending in people within your close circle because it can swerve ties no matter how strong they seem to be. However, during this challenging period of the pandemic, it has become harder to gain access to personal loans and credit cards. Many of the lenders are leaning towards the side of caution, avoiding engaging in risky ventures.

Unsplash | Many people are having financial troubles during these times

Some people believe that it has become a moral obligation to help their close friends in these turbulent times because not many lenders are willing to support the businesses on the brink of survival. If they do so, they are demanding hefty returns for the sake of interest. Therefore, if you are lending to your friends and family, it would not go wrong to err on the side of caution by abiding by these suggestions.

Never lend more than what you can afford to lose

Learn to say ‘N o’, especially when you cannot afford to lose any money. Sometimes it feels mentally taxing to refuse a loved one your help but assess your own financial situation, and if you think lending any money could put you in a financial noose, it is better to refuse. According to statistics, 80% of friend and relatives fail to receive back the money they lent earlier. Consequently, lending to friends and relatives often ends up ruining personal relations.

Banks judge a person’s creditworthiness through applications and past records, purchase behaviors, payback records, financial statements, and utility bill records before the provision of loan. Unlike banks, you do not have access to such intricacies of your friend’s financial profile, and you only have their character traits to speak for their reliability. Even then, most of the loans circulated among your close friends never see a repayment. Thus, the most sensible advice in this regard is that never lend more than you can afford to lose.

Unsplash | Your hard-earned money is not to be thrown away or burnt-off for no good reason

Do not shy away from asking the reason behind the borrowing

Do not forget, if you lend any money, it is your right to ask what it would be used for, no matter how big or small the amount is.

Some people may advise maintaining a written agreement with your friend. There is no prudence in this approach since obviously you cannot drag your friend through the court of law in case of a default. Instead of a written agreement, ask for a repayment schedule and mention the details of the repayment plan that accounts for the principal amount, interest due if any, and repayment dates and times.

Foot the group bills with caution

Never charge your cards for group bills to earn credit card points, especially when you are unsure when you will get paid for the bills. 70% of Americans admitted that at least once there rose a situation where they paid on behalf of a group of friends but never revered the full amount. 23% of people admitted that happened rather frequently.

If you have lent the money to your friends, do not be ashamed to ask for a repayment. Consider it as a well that cannot provide water if it is run dry. Not only the repayment will help you financially, but it will ensure that you have the funds when they ever need them again.

Unsplash | Being overly generous in group hangouts can put a dent in your wallet if you’re not careful

Lending to friends and family is tedious, but if you can manage to safeguard your personal relations from the spillage that comes along with the lending and if you have well assessed your personal gains from the situation, then you have no reason to let your friends stay in the lurch due to a cash deficit.