Should You Lend to Friends and Family?


It's happened to all of us at one point or another. Something has happened to someone we love, and money is needed. Our money. If perfect strangers asked us for money, we'd more than likely not give it, end of story. But when a friend or family member asks to borrow, we don't usually say "no" right away. We think about it first. Some of us are more apt to help out friends than family or family than friends. (See also: The Different Types of Loans: A Primer)

I've been thinking about this a lot lately, as a good friend of mine just inherited money from the sale of her grandfather's house. We've watched as all sorts of friends and family of hers have come out of the woodwork to ask her for loans. To be fair, she was often insolvent in her youth, and most people feel justified, I suppose, in asking her for money. It has, however, reconfirmed my beliefs and suspicions about lending to and borrowing from those you know.

The Complicated Route: Agreeing to Loan Money

Lend it. Go ahead. Don't expect to see it again, though. Or do what some people I spoke to about this do, and treat it like a bank loan — sign a contract, charge interest, and set up a timeline for repayment that both parties can be comfortable with. This is crucial to getting the money back. If you don't set guidelines for repayment in writing, you have no one to fault but yourself if it doesn't come back to you in that timely manner you expected when you said yes over beers. Don't expect the party to pay up faster than you set up a plan for.

Your Expectations and Values

Is your potential borrower a good bet? Do they have the capability to pay you back? You don't have to do a credit check on the person, but what do you know about them? Do they have marketable skills? Are they willing to do trades? Do they continually have trouble? Do your homework with other friends and relatives, and find out.

If someone asks you for money, do you get to judge where the money is going? Can you lend it, no questions asked? This is where resentment comes to fester. If you can't give it or lend it freely without the judgment, it's probably best not to lend it at all. None of us spend money the same, and we don't value the same things. For example, I spend $400 a month on tuition so that my kids can attend a great school. I gladly remain in a single-car family so I can do this. Someone else might find that idiotic.

I lend money for groceries, school related expenses, and women's reproductive health concerns. I usually won't lend or give for anything else. The key in all this is communication. As long as both parties are clear about their values and expectations, things can go smoothly.

From the Borrower's Perspective

Hopefully no one out there wants to borrow money from friends or family, but it can happen. Unexpected car repairs, house repairs, or trips to the emergency room with the kids can strain and break the pocket book. Sudden, unplanned unemployment can take an almost permanent toll on individuals as well. There was a month back in 2008 when my husband was laid off, and I had a bare minimum of work the same week that our car needed repairs and tuition was due.

Three times in my life I've borrowed from friends and paid back. They are all three people whom I would lend to in a heartbeat. One of the prime reasons I borrowed from them is that they knew my situation and offered (I hadn't asked). I don't see anything wrong with things going back and forth between friends as long as it is a true back and forth and doesn't become lopsided in favor of one person.

My mother is one of the most generous people I know. She has given both to my brother and I when we've asked for it and many times when we haven't. She says that basically, she expects both of us to keep up the family bargain of helping her out with whatever she needs whenever she needs it — and she instructs us to help people in our community when we can. We are fine with this arrangement. The other night she made too much meatloaf and brought some over for us. Last month I made an extra tray of enchiladas for her. We treat our money between the three of us the same way we treat our food.

But if any of the above makes you uncomfortable, take...

The Easy Route: Saying No

Just don't do it. Loaning money affects your relationship with the other person and creates inequality between you. You go from being friends or family members with a shared past to a serf and a lord. You'll find that you can't help yourself eyeing the borrower's purchases without suspicion. If you establish early on in your relationship with other people that you don't lend money to family and friends, people will quit asking you pretty darn quickly (and move on to those who say yes). It's when you've said yes that the asking really starts.

How about you? What are your rules and expectations of lending money to friends or family?

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Guest's picture

As much as I disagree with Dave Ramsey, I agree 100% with his hardline stance on lending money to family and friends. I absolutely agree that it creates a strain in the relationship if there is an obligation to "repay" the debt. It is not worth it! If you can afford to give the person the money (and it is for a legitimate expense) that is one thing, but never loan money to a family member or friend!

Guest's picture

My hubby & I don't lend. Instead we give if we can. It saved friendships and our peace of mind.

Guest's picture

My dad gave me a policy that I adhere to: If you lend under $100, lend it with the assumption that you will never see it again (even if said person agrees to pay it back), so if you're willing to lose that money, go ahead. If it's more than that, get it in writing. I would lend to my little brother in a heartbeat, and if I could spend the money to lend, I wouldn't expect it back. My parents won't consider anything they give me a "loan," but as far as friends, aside from my boyfriend and best friend, I would not. It's too much of a hassle, strain, and worry.

Money Beagle's picture

I lent money to friends twice and in both cases it turned out fine. I lent money to a cousin once and it didn't work out. She eventually ended up paying me but it damaged our relationship. I learned my lesson and we've turned down a couple of other requests along the way since. We feel bad saying no but I think it's better in the end.

Guest's picture

If asked for a loan I expect to be paid back, if I choose to give it, it is a gift.
I agree, it is better if you can afford it to give it, no strings attached.

Guest's picture

Just GIVE the money to the person asking for it and don't expect it to be repaid - if you can afford it and don't care, it won't be a problem. But remember, this is the end of the friendship - they are now embarrassed to have asked you. If you don't want to loan the money, just tell them you're having a tough time and would give it if you could. If you're rich and they know it, consider the friendship ended. I'm not saying to be friends with your economic status but this will solve the problem.

Guest's picture

I have lent people money in the past but try to avoid it as much as possible. The best one was the time I had lent a friend money to gamble at the casino. I gave him 50$. of course i haven't seen him in months. I knew it was gone the minute I lent it to him

Guest's picture

That's a fresh perspective on it. I would have to agree here, but I am still not sure about loaning to family and friends, at least in my case. Even with the contract, their is still a big chance of creating a tense environment.

Guest's picture

I lent money to my ex a few years ago. It was around $3000. He had a very good-paying job and assured me he would pay me back quickly. Instead, after several months of pestering him, he ended up paying me back with new furniture and a new television - so NOT what I was wanting when I lent cash. About a year later, I decided to give him another chance and lent him $2000; this time he swore on his daughter's life that he would pay me right back after selling his truck. Instead, for the next year and a half, I saw him remodel his house, buy new cars, and send literally thousands of dollars down to his home country, all without having paid me back. I was furious and it definitely destroyed our relationship.

More recently, my younger sister asked to borrow a couple thousand dollars from me. At that point, I said that I'm never going to lend money to someone again. She was very upset with me and called me horrible names, but that's just the new policy I've adopted after being burned.

Guest's picture

I haven't lent money personally to friends or family but have seen it firsthand ruining relationships. Because of this, I am hesitant should any of my friends or family approach me. I like what the other commenter said about the amount being under $100 and not expecting it back.

Guest's picture

When my friend hit a hard spot (a very hard spot which also challenged her in her profession), I suggested we do a garage sale. I brought all kinds of kids stuff (expensive toys packed away) and other good stuff just lying around my house to mix with hers. There were other contributions from two friens. She made 4 figures out of this garage sale and I am still smiling. What I got was an emptied basement from 16 years of packing good stuff away which I would have never used or sold myself. She got the money but the sale also provided us with great memories. We both won.

There are other ways to help. When another friend's house was headed to foreclosure, she would not take a gift of money. Instead her husband became a handy person, paid by the hour. He did a ton of work around my house I needed. Their house was saved. My house was so improved. Another win/win.

There are creative ways to help out which are win/ wins for all involved.