Category: Lending

Lending

Should You Lend Money to your Friends?

It is lovely to be seen as a generous person. We like people who are generous in many ways, but being generous with money can be problematic, particularly if you lend money to friends. So it is not always the right thing to do and you should think hard before you do it.

If you have a friend who is short of money and you have money to spare it can be tempting to lend them some money. It feels like the right thing to do, that you should look after your friend and let them have money at a time when they need it and you have a bit extra. Then when they have some extra money again, they will be able to pay you back and everything will be square again. They may even be able to return the favour if you need money. However, there are times when things do not turn out quite so well and so it is worth thinking hard about whether to lend money or not.

There could firstly be a problem if they cannot pay you back. Their financial situation may get worse and they may not have the available money to give you back what you lent them even after getting paid. This might be okay for a while, if you are still well off, but if you get in a situation where you need extra money, but there is none because you have lent it to your friend, then this could be a problem. You may have to borrow money yourself then and perhaps if you have to get a loan and pay interest on it, you may regret lending them the money. You may even feel like demanding it back and insisting they get a loan instead and this would not be good for your relationship with them. They may even forget that they borrowed it, if a lot of time goes by and you may want it back and they claim they do not owe it to you.

You may think that when they repay the loan that they should give you some interest. Perhaps you discussed this when you lent it or just assumed it. Either way, if they think this is not fair, do not remember or do not agree then this could cause problems between you. Even if they repay you, you may feel that you have not had enough money back as if you had kept the money you could have earned interest on it in a savings account.

Another possible problem is that once you lend someone money, they may expect that you will be able to do it again. They may ask for money at a time when you may not be prepared to lend it. But if you refuse and then seem to have money, they may not like it. They may think that if you have money you should be letting them borrow some of it. It may be that you decide to lend money to someone else instead and they may not like that. They may feel that you are putting that person before them and it may just be that you thought it was their turn or that they asked you first. If you get a reputation for lending money you may find that a lot of people start asking you and you may find it really difficult to decide who you think deserves it the most.

Of course, not all friendships are like this, but money can really come between people. It can best to avoid lending to anyone and then it will not be a problem and it will not come between you. Even discussing the subject may cause a problem so it is often best to avoid talking about money very much, not letting people know how much or how little you have and then they will not even know whether you have enough to be able to lend them some if they need it and then they will never ask. If you really do want to lend it to them, then have a written agreement between you. Write down how much was lent and how you wish it to be paid back and whether or not you expect interest on that payment. It may all seem rather formal, but it will mean that there will be no disagreements with regards to the circumstances. It can always be changed, but you will both have to agree to it. Make sure it has clear details of how much was lent and when and how much is to be paid back and by when. It might be that you want instalments or a lump sum, that you only want back what was lent or you want a small fee or to charge interest. Discuss it between you, write it out and sign your agreement so that everything is clear.