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Most of us love to help others, so when someone we care about asks us for money, we immediately want to give them as much as we can. Although generosity is a wonderful virtue, it may not always serve you well when it comes to money.
Lending money to someone in your family or a friend can become much more complicated than it first appears. When banks lend money, it’s strictly a business deal. You borrow the money, they tell you how much the payments will be, and when your payments will be due. You know that your bank doesn’t care how much or how little money you have every month. If you fail to make a payment, you will have consequences to deal with.
When your friends or family members ask to borrow money, it’s on a personal basis. If they don’t have the money to make a payment to you one month, you’ll be inclined to let them skip the payment without a penalty. Or they might tell you that the monthly payment you agreed to just doesn’t fit into their budget, so you agree to a lower payment. What do you do if you stop receiving payments altogether?
Another aspect you need to think about is how owing money or lending money can affect a relationship. My parents lent my husband and me some money when we were in the middle of our financial disaster. I appreciated their generosity more than I could say, but I felt guilty whenever I saw them. My husband and I made regular payments to them, but they were small payments. I imagined my parents talking to each other about how they thought we could really afford to make larger payments or how we were poor money managers. They probably never had those conversations, but that didn’t stop me from creating these scenes in my head.
There’s usually a good reason behind people asking their friends or family members to borrow money. It’s because they are unable to borrow money from traditional lending institutions. This could be because they have bad credit or they are already too far in debt to qualify for a loan. Beware! Don’t put your financial future at stake in order to help someone that has been irresponsible with money. It’s an entirely different matter if it’s someone who has just fallen on hard times and needs a little help to keep their heads above water.
If you really want to help a close friend or family member who is in financial trouble, give them money. Don’t ask them to pay you back. If you give the money as a gift, nobody will feel the strain of the lender-borrower relationship.
My suggestion to you:
Think twice before lending money to anyone. Lending money to friends and family members can cause more problems than you might expect. Be aware that lending money to someone can damage the relationship. Consider giving money as a gift.
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