Tuesday, May 11, 2010

Why You Should NOT Lend Money To Friends and Family

Just like the majority of you, I have been asked by friends and family members for money. While they may call it a “loan,” you hear something different. If you are like many, you strongly believe that a loan to a friend or family member is going to end up in a bad place. In the past, I have made the mistake of giving in and trying to help those close to me with their financial problems. Some situations ended up alright, and others not so much. The following points are meant to show you why you should never lend to friends and family members:

1. You will never want to ask for the money back.
This may not be a problem if the person on the other end is honest and timely, but how often do both of these traits come together? Since you do not want to cause any problems, you are inclined to sit back and hope that the money eventually makes its way back to you. Unfortunately, with each day that goes by, you will become more annoyed. In one case I have dealt with, the money was more than two months past due. Finally, I decided to ask my friend about it as nicely as possible. And guess what happened? He got mad at me for “pushing” and “talking down to him.”

2. A loan can harm a relationship forever.
As you can imagine, my friendship was greatly harmed when the money was not repaid on time and my friend assumed that I thought differently of him because he needed financial help. While I ended up getting the money back shortly after our conversation, things do not always work out that way. Imagine if the loan was never repaid. My friendship with him may have been damaged forever. And even though it was paid back in this instance, the damage had unfortunately already been done.

3. Some people do not take a loan from a friend or family member as seriously as they would with money from the bank.
This leads to a slew of problems including not getting paid back on time, missing payments (if this is the structure you have), and acting like nothing is wrong when you approach the situation. You are not a bank and for this reason you shouldn’t expect to be treated like one, even if the situation calls for it.

4. Loans to friends and family always seem to be more “open ended” than they should be.
This can be anything from saying that the borrower can pay you back when they have the money to charging only as much interest as the other party can afford. Do you think a bank would lend you money without a contract detailing the exact terms? Of course not. But for whatever reason, personal loans always turn into this.

5. They will probably come back for more.
You probably know where I am going with this, right? My friend, the one I mentioned above, was asking for another loan within a year despite our falling out the first time around. Once you show that you are willing to loan money, the same person will probably ask for more in the future, even if they do not absolutely need it. On top of this, word may get out that you are in a generous mood. Soon enough you will have other people hitting you up for loans. If you are going to lend money to anybody who asks, you might as well call yourself a bank!
I’m not trying to tell you to be heartless, because sometimes your friends or family members really are in a bind and you should help them out. But, I think you should do it as a gift and only if you can afford never to see that money again. Just give them the money without the intent of being repaid. A lot of people will tell you that they don’t want a gift or charity, but if you internally treat it as a gift, then it won’t matter to you if or when they pay you back. Do you have any experience lending money to friends or family members? If so, we would love to hear how things turned out.


Anonymous,  May 11, 2010 at 8:56 PM  

i have very bad experience on this...susah nak tolak padhal mereka org yg susah bertolak ansur...what to do...its my fren n my family...sedihnya kalau kita yg lagi butuh: none of them believe n none of them come to help..and when i ask 4 return, it seem like beggar...loaned as lumsum return like installment...wreckless..

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