Money and Relationships

Money Lending To Family And Friends

Updated on March 27, 2020 Updated on March 27, 2020
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"Never a borrower nor a lender be." —William Shakespeare

Thinking about lending money? We’ll wade into the mine field of money lending to family and friends.

Have you ever lent a friend or family member money? Did they pay you back? Did they not pay it back and it destroyed your relationship? This rarely seems to turn out well so why does anyone do it?

Why Do People Do It?

Guilt sometimes. This is an especially potent reason when it’s a close family member asking for help. Particularly when it’s a parent asking. Your parents raised you after all, fed and clothed you, took care of you, loved you.

Some parents will count on this guilt and leverage it against you. And if it’s for a good reason, they have no food or need medical care for instance, I think you are obligated to help if you can.

So long as your parents were good parents. If you have shitty parents, I don’t think you have any more obligation to loan them money than you would to loan it to a shitty stranger. Some people seem not to understand that someone being related to you should give them less licence to treat you poorly, not more.

Surprise is another reason people agree to loan money. Has someone ever invited you to something unexpectedly and even though you didn’t want to really go, you just blurt out a “yes” because they took you by surprise?

If that happens, you can always cancel later, you just have to come up with an excuse. It’s a little harder to undue your “yes” when you’ve agreed to loan someone money.

In some cases, the lender genuinely wants to help. They feel the reason for the loan is valid and as such, may trust the borrower to pay them back more than if the reason seems superficial. Or maybe the lender is just magnanimous and has money to spare. Perhaps they see it as a donation to a cause closer to home than most.

Should You Do It?

There is really no easy answer to this. The old rule of thumb is only to lend money that you can afford to lose. But just being able to afford it isn’t necessarily the only criteria. In a lot of cases, just being asked to loan money can damage the relationship.

It can be cause for resentment on both sides. The borrower might resent having to ask, that the lender has money that they don’t. And the lender may resent being made to feel like a bank. And resent being put in the position of having to say yes or no.

Do you trust the person to pay you back? Do they have the resources to do so? Maybe a friend lost their job and is having trouble finding a new one. But you know them to be a good employee, a person who pays their bills on time, just a generally responsible person in a temporary bad situation. I would lend money to someone like that.

Your chronically unemployed because he can’t control his temper and gets fired a lot brother wants to borrow money, again? Family or no, I think you under no obligation to lend money in a situation like this. Tough love is a thing and some people need it.

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Set Some Guidelines

If you do agree to lend someone money, draw up a plan of how they will pay you back. How long will it take, how often will they make a payment, how much each payment will be, will there be any interest charged?

Is there something they can give you as collateral? I know it sounds cold, but they are asking you to enter into a business relationship of a sort so I don’t think it’s an unreasonable thing to ask. Especially if whatever agreement you make is hard to enforce without drastic action like suing them in small claims court.

But again, if you decide to go this route, make sure you can afford to lose the money and possibly lose the relationship. Even if you don’t care that you weren’t paid back, the person you lent money to may avoid you out of awkwardness or embarrassment.

Is There Another Way To Help?

Is lending money really the only solution to the problem? There are a lot of alternatives that should be tried before bringing money into a relationship between friends or family.

What is the person’s living situation? Can they move into a smaller place or get a room mate? How about transportation? Can they get a cheaper car, get rid of an extra car, sell the car all together and walk, bike, and use public transport?

Do they have a storage unit? You would be surprised how many people do. Paying good money to house stuff so useless, they don’t bother keeping it in the house. Maybe part of the reason they’re coming to you for money is that they spent all their’s buying stuff. 

Helping them to sell some of that stuff, on eBay, Amazon, Craig’s List, having a yard sale, might mean they don’t need a loan or at least allow them to get rid of an expensive storage unit or down size into a smaller place.

Or maybe their finances are just so disorganized that they are spending money on things like late fees and overdraft fees. Maybe they make plenty of money but don’t know how to budget and spend huge amounts on unnecessary things like eating out and clothes without realizing how much.

Sitting down and spending an hour helping them to set up a Mint account might relieve the need to borrow money.

Are there things they could do for you in exchange for money? Yard work, baby sitting, help your improve your business’s web site. Exchanging services for money feels more balanced than a loan.

Maybe you can help them start a side business with a hobby or talent they have. Everyone should have a side hustle to help bring in some extra cash. Could they get a loan through Lending Club or even a personal loan at a bank?

Turning a personal relationship into a lender/borrower relationship is fraught. There are some circumstances in which you should consider it, but make sure you’ve exhausted every other option of help first.


Candice Elliott - Senior Editor
Candice Elliott is a substantial contributor to Listen Money Matters. She has been a personal finance writer since 2013 and has written extensively on student loan debt, investing, and credit. She has successfully navigated these areas in her own life and knows how to help others do the same. Candice has answered thousands of questions from the LMM community and spent countless hours doing research for hundreds of personal finance articles. She happily calls New Orleans, Louisiana home-the most fun city in the world.

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