Placeholder image

Tips for lending money to friends and family


September 25, 2019


Money is a complicated and often sensitive topic. While it’s normal to want to assist loved ones, a "friendly" loan has the potential to ruin relationships and can lead to the lender losing money. The following tips will help you if you are considering loaning a friend or family member:

Lend what you can spare

Turning down a request for help from family and friends can be difficult. However, it is important to consider your financial circumstances. Do not lend money that you will need shortly or cash that could leave you or your family suffering financially - even a little bit. Learn to say no If you cannot afford it or are dealing with a loved one who has a history of defaulting on loans borrowed from you or other people, then you should gently but firmly refuse. Keep the communication open and let them know why you feel that is the best decision for you at the time. Stick to cash If your friend or family requests you to cosign a loan or credit card for them, politely decline. Whereas you can control cash, cosigning on a credit facility for a loved one will put you in a position where their actions could affect your credit score and ability to borrow in the future.

Consult your partner

Advancing money to a loved one can not only drain your cash reserves but can put a strain on your marriage too. It is advisable for people who are married or in relationships where a bank account is shared to keep communication open and have their partners on board before lending money.

Offer alternative aid

You do not have to lend money just because a loved one asked for it. Understand the underlying issues that are causing them to borrow then offer to help. For instance, you can help them find a second job for extra income or even teach them how to budget for their income.

Document it

While dealing with large amounts, it is important to spell out the terms of the loan including the amount, interest and repayment schedule. Having both parties sign the document will help motivate the borrower to make timely payments. You may consider engaging a lawyer in this. Ultimately, the decision to lend money is a personal one. Always consider the consequences of loaning money to a loved one and make the wisest decision.