So Your Friend Wants to Borrow Money? Here’s What to Do

by Alexa Mason · 9 comments

You love your friends and family, and you’d do absolutely anything to help them.

Then one day, your friend is late on rent and asks to borrow $500 from you. He promises to pay you back when he gets his next paycheck, but you’re not so sure.

You’re worried that loaning out money could put a strain on your relationship — but you really want to help your friend in his time of need.

What should you do?

Just Say No

As someone who’s been burned by loaning money to loved ones, I highly caution you against it.

You see: When you lend money, your relationship is going to change. Your friend will feel indebted to you (because he will be). Hanging out together will feel awkward until the loan is paid off — and if the loan goes unpaid, your relationship could be ruined. There’s so much that can go wrong when you decide to loan money to family and friends.

Instead of giving out money, tell your friend how much you’d like to help but that you don’t have the money OR don’t want to ruin your relationship.

Take it from me: It’s a horrible feeling to know money has ruined one of your relationships.

Or Give the Money Away

I know what it’s like to want to help a loved one. Especially when you recognize that help is truly needed, it’s hard to stand by and watch. But here’s the thing: If your friend has fallen on financial hardships, it’s pretty unlikely that he’s going to be able to pay you back.

If you have the resources, just give them the money — no strings attached. Tell your friend to pay it forward one day, when he’s in the position to do so.

If You Must Loan, Get It In Writing

If you don’t have the ability to give away money, and really want to help them, then be sure to get your loan terms in writing.

A funny thing happens when you loan money: The borrower and lender seem to remember the original circumstances differently. Or at least that’s what happened to me.

To prevent confusion and possible arguments, get the loan amount, payment terms, and interest in writing. Have both parties sign the contract, with a copy for each to keep. Now when any questions pop up, you can just refer to the signed contract.

Conclusion

Be aware that there are some serious consequences to loaning money to friends and family. Even though all intentions may be good in the beginning, things can go sour quickly. Before you open up your wallet, make sure you know what you’re getting into.

Have you ever loaned money to friends or family? How did it go? 

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{ read the comments below or add one }

  • Arminius Aurelius says:

    I am retired now but over my lifetime I have seen and experiences a lot.
    I got an education , worked very hard for 60 to 70 hours a week in my own business and thanks to my parents learned how to save money . Therefore I am now financially well off . I have a friend who was quite successful in his 3 businesses and comfortably well off . He had a ” friend ” on Cape Cod who wanted to go into the restaurant business and asked his / my friend to
    Co-sign for the loan . In short my friend Jack did not loan him any money …..
    ……..but when his ” friend ” went bankrupt , the bank went after my friend to get their money back . His ” friend ” put his house in his wife’s name and therefore the bank could not take the house . My friend lost all his savings and his businesses . He was now impoverished and on Food Stamps.
    It probably is best to say that you have no free cash , everything is tied up in long term investments that you cannot cash in .
    His so called ” friend ” crucified him . Greed rules over friendship .

  • Dave says:

    When a friend is in a “pinch” whether it’s you or another person, get a “promissory” note (a legal form) from a stationer, and have both parties sign and in the presence of a notary who will then stamp it. NOW, for the record…it’s a legal document.
    Whenever the loan is paid, or dropped for whatever reason, it can be torn up, burned, or cancelled.
    I’ve done this, and it gives both parties whether friends, family or other the legal obligation to settle the debt.
    Any further terms, such as expiration date or payment dates may be added.
    Hope this helps those needing some form of security. Property of value may also be held against the loan, if that works for both.

  • Kate says:

    “Neither a borrower nor a lender be; for loan oft loses both itself and friend.” Polonius’ advice to Hamlet.

    I have decided that whenever I “lend” money to anyone, I will mentally relinquish that money as a gift; however, I do not tell the borrower. I have found that those who are sincere will pay it back, and those who are not, or who are ashamed to say they cannot, will not. Or they are like my youngest sister who believes that every last dime in the world rightfully belongs to her, and no matter what you do for her, it will never be enough. Relinquishing such money as I gave her is the only way to keep from stuffing her in a sack and throwing her off a bridge. (One MUST help one’s relatives, unless they are psychopaths or in prison.)

  • Kay says:

    My rule is to never lend more than you can afford to lose. If you don’t get paid back, well it is easier to say no to that person in the future.

  • KT says:

    I never made loans to anyone – only gifts when I can afford it and with the understanding it is a “one time” event. The only people I want depending on me regularly for financial support are my parents, my kids, my spouse and my pets.
    That way I can help without ruining relationships yet set boundaries at the same time with no hard feelings.
    It’s worked well for me in my life.

  • Gretchen says:

    I’ve been known to tell friends straight up “no” because I keep business and family separate. Some have been disgruntled, but when that happens it makes me even more secure in my decision to tell them no, because loaning the money would have definitely ruined our friendship!

    • David Ning says:

      Good for you to know when to draw the line. I haven’t had friends needs more than, say $10, or something small, but I’m not sure how exactly I’ll respond if someone asks because they need money to pay rent! It’ll be a difficult moment!

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