Reasons To Consider Before Lending Money To Your Friend

Advisor February 7, 2018

“Money and friends don’t go well”. If you have heard the line before, you already received advice on why you shouldn’t loan money to your friends. Dealing with money is a very risky business and you’ll usually hear that it helps you build but it has the power to destroy anything that stands in the way of it.

Lending money can hurt friendships according to some financial advisors

Not all of those who have given loans to their friends ended up having a fewer friend than yesterday. It’s not always the case, as long as rules are established. It can be more difficult to negotiate but it can be done.

If you find yourself at the crossroad of whether to lend money to a friend or not, let this article be your guide.

You might get too shy to ask the money back

One of the reasons why this fails is that the person being loaned to usually finds it hard to ask for the payment. If the money is too small, chances are you just let your friend have it. If the amount is too big, you might feel too strict for rushing them. Since there is an emotional attachment to the both of you, you try to be more empathetic to the point that you also find yourself in a financially tight situation.

Solution:

If the money is being loaned, no matter how small it is, you must ask for it back. One of the quick fixes to this is to talk about how the payment method is going to work. Set up a paying schedule that needs to be followed to avoid any chaos. The plan should be consensus to avoid any bad blood.

It will become a dormant money

One of the people’s goals in life is to roll the money that they worked hard. That is why we see more and more people invest in stocks and do business. When you lend a friend money, especially when it is a sizable amount, that money automatically becomes dormant. You can’t use it and it doesn’t grow.

You can add an interest that is lesser than the bank but will still grow your money

Solution:

If your friend loans a bigger sum of money, you might as well have to talk to him/her about interest rates. It can be awkward but that doesn’t invalidate you of your claim to the money. Let that friend know why you are doing it and make sure he/she agrees to it. One reminder, don’t link a bank to your friend. They asked for your help for a reason so don’t choke them with high-interest rates. Just enough to see your money grow even a little bit.

You could lose both

There are many horror stories about friendships being broken just because the other one failed to pay. It can obviously get in the way of your relationship, but you can decide if it should be. Before giving the money, you also have to assess yourself first as the lender. Are you just doing it because you can’t say no or you are really willing to help the person out? If you chose the first one as your answer, might as well not do it. This initial emotion will create tension for the both of you, especially when payments get delayed.

Solution:

Inform the person nicely if there’s emotional conflict going on. If you find yourself in a financially uneasy position, let your friend know. If you don’t have an extra cash stashed somewhere, don’t say yes. You’ll just find yourself getting broke and blaming that friend for putting you in such bad position. Offer alternatives to help them out, without loaning them a money.

Lending money is a personal choice. Assess the situation if it can help or will just end up badly

Bottom line:

Loaning money to a friend is a personal decision. The ending will not always be bad, but it won’t also become a smooth ride. Before you loan them money, assess your friend’s capability of giving back. If you feel like he/she is not very reliable when it comes to handling money, then don’t be afraid to say no. Fallouts are usually brought by high expectations, not being true to the agreements, and being both passive and aggressive.