Lending Money to Family & Friends
If your family and friends were a business, they would be the seventh largest mortgage lender in the U.S. according to financial services company Legal & General. It is a fact of life that some people will need to borrow money and with the current Covid-19 pandemic this scenario is a more common occurrence now. If a friend or family member comes to you for financial assistance, what do you do?
Over the past six months I have personally lent $2,000 to friends and family. Having gone through this I wanted to lay out things to consider and a strategy for managing this sensitive topic. If you use the points I have laid out below I guarantee money will not come between you and the person who requested it.
Ask What It’s For And Request Time – Since you are the one loaning out the money, you have the right to ask what it’s for. Especially if it’s for a large amount. If the money is for something nonessential you can feel comfortable saying no. You should also tell the person you’ll take time to think about. Never let yourself be pressured or guilted into a quick decision when it comes to lending money.
Lend Only What You Can Lose – I believe it was Drake who said, “Never loan somebody what you need right back”. Truer words have never been spoken. If lending money would leave you unable to pay your own bills, then you should say no and help point the person elsewhere. You should always have an emergency fund that can sustain the loss before lending.
Think Of The Loan As A Gift – A lot of bloggers and experts recommend getting the loan transaction in writing and setting up a repayment plan. In reality, the chances of you taking your family to court if you are not paid back is very low. Additionally, if they were in dire straights in the first place you should not expect that they will be able to pay you back anytime soon. If you think of the loan as a gift, you will find it much easier to reconcile mentally.
Lending money to family and friends is a risk. If you’re aware of the risk and work to preserve the relationship, it can work out. And hopefully, they will be able to pay you back one day.
