Do you lend money to your friends?

Should You Ever Lend Money to Family & Friends?

• Answer:

  Many people advise against lending money to family and friends because of the potential damage it can cause to the relationship if the person to whom you lent the money does not pay you back. Of course, most people hate to see their loved ones struggling financially, so if they have the means, they lend them the money. Lending money to family and friends is fine, as long as you put serious consideration into whether you should give them the loan or not. You also need to be very realistic about the prospect of them not paying you back. Being Realistic If you choose to give the loan, you need to accept the possibility that you may never get your money back. That's not to say the person will definitely not pay you back. It is to say that if he doesn't or can't pay you back, you need to be able to look past the issue, and not allow the loan to destroy your relationship with him. If you don't prepare yourself for the possibility of his not paying you back, you may begin to harbor resentment. This type of resentment tends to build, causing negative changes in your relationship --- and could eventually destroy it. Get it in Writing If the loan is substantial, you should strongly consider drawing up a contract with the person to whom you are loaning the money. The contract needs to state the total amount of the loan and the payment terms. You can make the contract official by having it notarized. A few companies administer these types of loans for a fee. There are also software programs and various legal websites that offer loan contract documents where you fill in the information yourself. Discuss Non-Payment Consequences Discussing the consequences of what happens when the person to whom you are loaning money does not pay you back can get very tricky, because there is no way to predict the future. However, it is important that both of you know exactly what to expect should the loan not be repaid. For example, consider talking about the legal actions you will consider, such as suing the person in court to get a wage garnishment order. On the personal side of things, both of you should discuss your fears of what you think may happen to your relationship should you have to take such actions. Considerations Loaning family and friends money is similar to gambling --- you should never loan more money then you can afford, or more money then you are willing to lose. You loved ones may have every intention of paying you back, but financial emergencies may arise, such as a job loss or illness, that prevents them from paying you back in a timely manner. Exercise patience and empathy when it comes to how long it may take the person to pay you back. Being empathetic toward her situation can help prevent major arguments with her about the loan.