Buzz
Times are challenging. If you're facing financial difficulties, you might consider asking a trusted friend or family member to lend you some money to help you recover. Alternatively, maybe your younger sibling is requesting a loan to get them through until their next paycheck. However, proceed carefully: You may recall Shakespeare’s advice, 'Neither a borrower nor a lender be,' and it’s likely he was referring to borrowing or lending money between those close to you. Borrowing money can put you in an uncomfortable position, especially if you can’t repay on time (or at all). Lending money can also cause tension, as you expect repayment, while they may become frustrated with your constant reminders. In short, when money enters the equation, there’s a high chance the relationship could sour.
Because of this, borrowing or lending money within personal relationships should be viewed as a last resort. However, there are ways to prevent things from going wrong.
Make Sure Everything is Documented
Laura Adams, a personal finance expert from Finder.com, recommends that before any money is exchanged, you think like a bank. It’s crucial to document everything in writing: the exact amount of money involved, along with the terms and conditions for repayment.
Adams further advises that when you’re engaging in a significant financial transaction with a family member or friend, it’s important not to be too casual. A formal promissory note should always be created. When borrowing money, ensure all the details are in writing, offer a reasonable interest rate, and make sure the lender feels at ease with the arrangement. Proper documentation helps avoid future misunderstandings.
Handle the loan as you would any regular bill
Christine Luken, also known as the Financial Dignity Coach, stresses the importance of treating a loan from a friend or family member just like any other bill. Make sure to pay it on time, and try to pay extra if possible to pay off the debt ahead of schedule. Open communication is vital—if you can’t meet the payment deadline, don’t avoid the lender. Be upfront and discuss the possibility of reworking the agreement to get back on track.
If money is tight, Adams suggests creating a budget that accounts for your income and expenses, ensuring you can meet your financial obligations to family and friends. The agreement might include a grace period, such as starting repayments several months after the loan is received.
Do not lend money if it jeopardizes your own financial stability
Sometimes, our desire to help loved ones can lead us to lend money we can’t afford, or offer a sum that puts our own financial security at risk. This is a mistake. 'If you can’t afford to give your friend the money, then you can’t afford to lend it to them,' Luken advises. 'Not only will you harm the relationship, but you'll also endanger your own financial well-being. Plus, you’ll face the emotional toll and potential fallout if the loan doesn’t go as planned.'
Luken highlights that lending money you can’t afford isn't just stressful for the lender; it also places an emotional strain on the borrower. It’s likely to damage your relationship. 'If you value the relationship, you must kindly explain that risking your financial health isn’t an option, or simply provide the money if you can,' Luken suggests.
Avoid lending money to anyone who has a history of poor financial habits or substance abuse
While you may want to support a friend or family member, lending money can seriously strain your relationship if they’ve been financially reckless in the past or have a history of substance abuse that impacts their finances. 'I understand it’s tough when someone tries to guilt you into lending money,' Luken says. 'Unfortunately, some will use emotional manipulation to get their way. We must remember that another person’s irresponsibility isn’t our burden. A simple 'No' is sufficient. You don’t owe them an explanation.'
Simply avoid doing it
If you know you're prone to giving in to a sob story for financial help, Luken suggests creating a personal rule of never lending or borrowing money from friends or family. 'When asked, just say, 'I have a personal policy of not lending money to friends or family. My relationships are too valuable to let money come between us,'' she advises.
In the end, it's important to remember that whether you’re borrowing or lending, your relationship could be affected until the loan is paid back. 'If you have other options, like borrowing from your bank or credit union, that might be a better choice,' Luken recommends.
This article was updated after publication to correct the spelling of Christine Luken’s last name.
