Even if you have never experienced this, at some point in your life, I can promise you will. Someone very close to you will ask you for money. This usually happens right when you get your finances in order and you are budgeting like a boss. Trust me when I tell you to never lend money to friends and family. It rarely ends well.
Once you are put in that position, it can be a very hard thing to say, “No,” to. You obviously care about the person or they wouldn’t be in your life. Even them asking you can put a strain on the relationship.
Over the years, I have been asked for money by family members (and an occasional friend). In my younger years, I took out a private school loan to help a family member out in a tough situation. Over 10 years later, they are still making payments on it, but it is in my name, our relationship is now non-existent and they could stop paying at any moment.
I have denied other small loans to different family members because I value that relationship more than helping them at that moment.
Is it hard for that person to come to you and ask for help? Most definitely, but they have then put you in an even more difficult situation because there is no happy outcome. If you say, “No,” you risk them getting upset with you. If you say, “Yes,” then you are about to put yourself at risk of losing that relationship.
When you think about it in those terms, I am betting most people would rather their friend/family member be mad at them for a few days for rejecting the loan versus losing that relationship forever.
People who suck with money tend to bounce back pretty quickly after you tell them, “No.” I have been asked multiple times by the same person for money and have said, “No,” just as many times. They always come back.
A popular saying about this subject is: “Before borrowing money from a friend, decide which you need most.”
You should definitely keep this in mind when you are put in that situation. Take time to really think about this. The person asking you for money has likely not given this any thought, but you as the lender should decide if the risk of losing them as a friend is worth it. Is your friendship worth that $200?
You should never lend money to friends and family if you value the relationship.
Here are 6 convincing reasons you should not lend money to friends and family.
1. There is no guarantee you will get paid back.
When you lend a friend or family member money, it usually happens in a type of situation where you say, “Just pay me back when you can.” This is a dream for the person asking for the money. There is no timeline, there is no collector breathing down their neck. They can pay you back whenever!
You have just given them permission to ignore paying you back until they want to. If you are like any normal person, you are going to watch your lendee spend money on other things in their life (vacation, eating out, new decorations, etc.) and you are going to have to make yourself not pass judgment on them.
“Maybe they could have paid back $100 instead of eating out tonight.” “Her new shirt looks nice. I wonder how much that set them back?”
If it is a loan with no timeline, you will have no timeline of payment and whether you mean to or not, you will be watching their spending. You, the lender, are good with money. They, the lendee, have been bad with money. Once you loan them money, you are at the mercy of their habits and have to wait for them to pay you back in your own time. This will be insanely frustrating and put a strain on your relationship.
2. You inadvertently put yourself at risk.
When you lend someone money, you have taken away part of your safety net. Now, every situation is different, but typically, if you have money sitting around to loan to someone, it comes from your savings.
We all know as soon as you lighten your savings, you will have an emergency come up. If you suddenly need that money, you are going to have to ask for it back. 9 times out of 10, they aren’t going to have it (they suck with money, remember?).
You are putting yourself at risk because the future can’t be predicted. Do not lend out your savings. It is unwise to do so and could put you in a bad position.
3. You become an enabler.
There are some situations where a person truly falls on hard times. BUT, more often than not, the friend or family member asking you for money has made poor choices, been irresponsible with their money or has a problem they can’t afford.
When you loan someone like that money, you are giving them permission to continue to behave in that manner. And, there is a HUGE possibility, you will never see your money again.
In these situations, it is much healthier for them, for you to tell them, “No.” If you continue to help them along their path of irresponsibility, then you kind of deserve to lose your money.
You know the old saying of if you give a man a fish, you feed him for a day, but if you teach a man to fish, you feed him for a lifetime?
This is like that. You give them money they will live to spend another day. BUT, if you tell them, “No,” and instead, teach them how to handle their money, you could change their life.
4. The relationship changes.
This one is a big deal. It doesn’t matter how nice the two people involved in the transaction are. When you loan a friend or family member money, it changes the dynamics of your relationship. It puts this cloud over everything. We borrowed money from my father-in-law once and that first Thanksgiving (we hosted), all I was worried about was if he was thinking we should have paid him something instead of hosting a dinner.
Even if he wasn’t thinking it, the perceived judgment was there and it changed our relationship for that period of time. How I looked at him and how he looked at my husband and I had changed.
When you loan someone money, it’s like they move below you a bit. Meaning you now have something over them in a sense. You have become a lending institution instead of their friend. This change stresses the relationship and causes tension.
5. It causes stress in your marriage.
If you are married, lending money to family and friends drive a wedge between you and your husband.
If you didn’t agree on giving out the loan but did it anyway, one of you will constantly be hanging it over the other one’s head. Especially when the person you lent the money to doesn’t pay it back in a timely manner (or at all for that matter!).
If you agreed on the loan, there is still an element of it being for THEIR friend or THEIR relative. There will be ownership established over whose friend or relative has taken the loan. One of you won’t be responsible for putting yourselves in this situation because it wasn’t your friend or relative.
Even if you have the best of intentions and are on the same page about lending money to a friend or relative, there will always come a point where you start to argue about it. Before you lend money, decide if it is worth hurting your marriage over. Whether you mean it to or not, there will be strife between you if you loan out your money.
6. You are a low-priority lender.
Most money lent to friends and family is done so interest-free and without penalties. This means there is zero incentive for them to focus on paying you back quickly. If they have other debts, yours will fall to the bottom of the list. They aren’t gaining any interest and you can’t turn them over to collections (unless you had a contract).
You are a zero-threat. You are just the nice guy waiting patiently to get paid back. The money will be important to you and it is very likely you will be insulted if they pay other things off before they pay you. This will hurt your relationship.
At the end of the day, it is extremely important for you to decide what is more important to you: helping out a friend or relative in the short-term or maintaining a healthy relationship long-term? If you lend money to a friend or relative you put yourself at risk, you may be enabling them and it will definitely change your relationship….and not for the better.
Saying, “No,” to a friendly loan is always going to be the best answer. If you really want to help someone out, but don’t want to ruin the relationship, just give the money as a gift with no strings attached.
