When it comes to loaning our hard-earned money to friends, we should always consider the risks involved. One of the risks is not limited to the loss of friendship, as a result of the loan. Or even worse, the entire loss of your money.
Personally, I have had a bad experience every single time I lend money to friends. Not because these were bad people, but due to the fact I do not taken certain factors into consideration prior to giving the loan. These factors are what I will discuss on this article.
The goal of the article is to help you arrive at your own conclusion about loaning a friend money. Since I do not know your friends more than you, it would be unwise for me to impose my experience on you. Hence, why we will explore the concept of lending money to a friend together.
Firstly, let us consider the following point below.
Are You Obligated To Help A Friend Financially
No, you are not obligated to do that. Unless your friendship is based on mutual financial support, there is no law that states you have to loan your friend money. Besides, a healthy friendship is one where one is not obligated to carry another’s financial burden. If such opportunity should present itself, it should be one of choice and not obligation.
Otherwise, it is a toxic friendship. Would you agree, good reader?
A while ago, I wrote an article- Do Your Friends Cost You Money, to explore the idea of the expenses some friends incur for us. While spending on friends is entirely our choices, there are times when we cannot escape helping a friend.
At such times, we should consider the following below.
What To Consider When Lending Money To A Friend
If you cannot decide if you should loan someone money, consider these:
Disadvantages Of Lending Money To A Friend
Firstly, there is a chance you may not get all of your money back. This is in a situation, where your friend is not financially stable. A friend who does not have a job or any job prospect is a bad investment.
What do I mean by a bad investment?
I mean he or she has no means of paying back your money. This is because there is no current income stream. If there is no job prospect too, it becomes almost impossible to pay back your money.
Secondly, there is a chance this person may come back to borrow more money from you. Nothing sucks more than people coming back to you to borrow multiple times. To refuse lending money to friends a second time, could be very awkward.
This is because it may create a resentment from your friend. Not only may it create resentment, but also it creates a feeling of awkwardness saying no to them. This is particularly, when a friend keeps asking to borrow money. And, he or she expects you to loan the money.
Finally, there is a chance you will not be okay when your friend refuses to pay the debt. A disadvantage of lending money to friends, is the rage or disappointment which results from our friends’ inability to pay back loans. It causes a strain in relationship. In worst case scenario, this can lead to a bitter end of the friendship.
When You Should Lend Money To A Friend
A poll by Creditcards.com, finds 42% of people who loan money to friends did not get it back. To simplify, almost half of lenders never get their money back from borrowers. Also, the same poll finds 26% of people who lended their money to someone experienced a damage in relationship. Personally, this is why it is a bad idea to lend money to friends since there is always a chance it will ruin your friendship.
To avoid being a part of the statistics, how do you decide if you should loan someone money?
When a friend comes asking for loans, here are what to consider when lending money to your friends.
1. Is Your Guilt Driving the Decision.
Sometimes, it is hard to say no to some friends. This is especially, when we are close to them. Personally, I have lost a lot of money because I could not say no to a friend who I knew could not pay back the money in full without some hassles.
Trust me, you cannot let your emotions override your logic, when making a decision about lending money to friends. It is how you become part of the 42% of lenders who do not get their money back. If you ever think your friend cannot afford to pay back your money, then trust the logic behind this thought.
This is especially, when you do not want to part with the money.
Besides, it says a lot about your friendship, when you feel guilty about saying no to lending money to a friend. This is especially, when there are legitimate reasons to it. A healthy friendship is one, where you do not have to do something, because of guilty or peer-pressured.
Having said that, here is a rule.
If your emotions are dictating the decision, rather than your sound judgement, it is not going to be wise to loan money to a friend. Unless you are giving away the money, do not to put yourself in a position where guilt dictates a decision which may ruin your friendship.
2. Avoid Loaning To High Risk Friends
In the United States, it is easy to get a loan from your bank than your friends. This is because banks and financial institutions can loan any amount of money to any working adult with average to good credit. Usually, people ask their banks or credit card lenders before their friends.
Therefore, a friend who comes to borrow money from you, has likely been rejected by the banks. What does this mean for you, my dear reader?
It could mean your friend is a high risk borrower. To simply put, he or she has a history of not paying back loans on time or at all. Often, this is gotten from credit history available to commercial lenders.
Additionally, you should not consider lending money to friends, when it is easy for them to get the money from banks or credit card lenders. Given any borrowed loan payment is going to be reported to the credit bureau, your friend has better chance of paying back a bank’s loan because of the consequences of not paying the debt. This is as compared to you giving them a personal loan, where there is no accountability or consequences for missing a loan payment.
Finally, avoid loaning to friends who have a history of changing jobs or losing income streams. This is because without a steady job, there is no way of getting your money back. Am I right?
3. Do Not Lend An Amount You Cannot Let Go
There is always a 42% chance you will not get your money back. It is recommended you do not lend an amount you are not okay losing, since it can create some financial difficulties for you. And, most likely ruin what is left of your friendship after the hassles of trying to get your friend to pay his or her debt.
Why am I telling you this, good reader?
Well, the hassles of trying to get a debt back is emotionally draining. Not only are you angry at your friend’s disappointment, but also you are pained by your friend playing victim each time you try to ask for your money. This is where they start painting you to be the bad guy, because you call or text them about your hard-earned money after it is long due.
Nothing makes me mad than losers, who play this kind of games with their friends. Trust me, you do not want the drama with these kinds of friends. Do not lend an amount you cannot let go, without serious regrets.
4. Do Not Consider Loaning Money
You could bypass the headache of collecting debt from your friends, by simply not giving them the loan. This is the best way to protect yourself from loaning money to a friend. You can just say no to them.
If you are financially stable or successfully, this may not stand well with your friends. This is because some people think they are entitled to our hard-earned money. So, how do you politely refuse to give money to a friend?
You just say, you are not financially buoyant right now to loan him or her money. It is not a lie, because it is another way of saying you cannot part with your money right now. There you go- no need to feel guilty about saying no because you do not want future strain on your relationship with friends.
On the whole, I just want to remind you lending money to friends is entirely up to you. Just remember people who tend to borrow from their friends, do not enjoy doing this. This is because they are indebted to their lenders. Some people may not acknowledge it, but there is a slight resentment from borrowers who ask for loans. The ones who truly need the loans, do not want to be asking their friends for loans.
It could be due to series of issues which range from bias, self-image or cultural beliefs. Whatever it is, just weigh the risks involved before you loan money to your friends. It will save you a lot of problems in the future.
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