Mistakes to Avoid When Loaning Money to Friends and Family

Given the opportunity, most people would love to be able to help their friends and family. However, as any good family member or friend should, it will help to understand and set some boundaries before openly accepting an invitation to lend out money. First and foremost, you should always ask what the loan is for. It’s great to be able to and want to help out family and friends but make sure there is a valid reason to do so. Also, it’s vital you make sure that you can afford to lend them the money in the first place.

Don’t Be Afraid to Say No

If you aren’t in a financial position to be lending money then you shouldn’t be afraid to say “No”. If giving someone a loan will lead you to your own financial difficulties you really might want to consider explaining that to them. It’s great to be able to help friends and family when possible but you should avoid having it be to your own detriment whenever possible.

When is Lending to Friends and Family a Good and Bad Idea?

When is lending to family or friends a good idea? When you are financially secure enough that even if you don’t get paid back, you will still be “okay”. When it’s someone in your immediate family that needs the funding to survive.

Pros

You will be able to help out someone you care about and that is in need and should ultimately feel like a more altruistic and generous person due to this.

Cons

There is a possibility you may not get your money back and you should be comfortable potentially losing the money. Moreover, it could negatively affect your relationship with that person.

It’s Okay to Say No

You should say no when you don’t feel comfortable lending the money and your gut tells you it isn’t a good idea. Moreover, you should be comfortable saying no anytime, but especially if you feel the individual doesn’t meet your “is this a good idea?” list.

With all this being said, if you do lend them the money, you should incorporate a planned repayment period and get commitment for them to pay before lending out the money. It helps to get these sort of things in writing. Being able to help family and friends is truly great, but always trust your gut! If things don’t go as planned be prepared for some awkward thanksgivings and meetups.