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Home > Do You Loan Money to Friends and Family?

Do You Loan Money to Friends and Family?

December 6th, 2009 at 11:16 am

It is usually not a good idea to loan money to family. So many things can go wrong. In this economy many family and friends may need help, and of course we want to help ease their stress and pain. Even though lending a financial hand seems like the right thing to do, it can actually backfire and cause drama and distress.

Have you ever used your hard-earned money to help someone that is broke keep their house, car, utilities, or put food on their table? Then to see them a few days later with a new manicure, pedicure, or hair cut. Have you loaned money with a promise to repay and after they ditched and dodged you for months and even years, you realized you would never see your money again? So what should you do when you are approached by family or friends to borrow money? First, find out why your friend or family member is having a difficult time. If they have a history of being irresponsible or reckless with money, why should that be your problem? If they are consistently bad with money, giving them money would do more harm than good. In fact, if you give someone money that is not interested in changing their spending habits, loaning money can ruin them and your relationship.

Below are some suggestions on loaning money to family:

Do not lend money you do not have. You have your own bills to pay. If you are in a jam who will be there to help you? If you cannot afford to lose the money, do not do it.

Do not co-sign for a loan. You want to ruin your credit and get in debt? Co-sign and take on someone else's financial obligations. If you want tension, stress, possible resentment, and a stained relationship, go right ahead co-sign. Not a smart move.

Teach them how to budget. Giving a loan or money is not always the solution to someone that is having financial troubles. Show them how to manage their money, prepare for the unexpected, and take preventative financial measures to be sustainable.

Give a small gift. I never loan money. But, what I will do is give towards a person's need if I feel lead to do so. Many times I do not feel lead to do so, but when I do I let them know it is not a loan and they do not have to repay me.

Get a loan in writing. If you do decide to loan money, make sure you put all the terms and conditions in writing. The agreement should include a date for repayment, monthly or lump sum amount, signatures of both parties, and copies should be made. The original should go to the lender and a copy to the borrower.

There is no shame in saying no.

If your answer is no, that is okay. You do not have to give a long explanation or reason, keep it short-n-sweet. Let them know you cannot loan them money, but you can offer a small gift (if you can). Bottom line, it is up to you to look at all the options and make the best decision for you, your family, and your situation.

Have you ever loaned money to family or friends?

6 Responses to “Do You Loan Money to Friends and Family?”

  1. lizajane Says:

    When we had it to loan, we have. It's always been repaid in cash, labor, or trade (something of similar value). Sometimes, it took a year or more. It does make it awkward, though, because it's so tempting to analyze every purchase they make during the time that they owe you money.

  2. NJDebbie Says:

    When I loan my family money I realize that I made not see the money again. It's still very nice when they pay you back.

  3. DeniseNTexas Says:

    I don't loan money to people. I simply give it to them with no expectations or understanding that I'll get it back. It's a gift, plain and simple.

  4. Broken Arrow Says:


  5. Jerry Says:

    I have seen family loans lead to too much discord and ugliness to make it worthwhile. I think that this kind of thing needs to be along the lines of what DeniseNTexas mentioned - give it if you have it, DON'T if you don't, and make it a gift. If they choose to repay, just be grateful and pay it forward. That way, you have some insurance against hard feelings and mistrust.

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