Should You Lend Money to Friends?

Written by Karen Bryan

coinssqintIt puts you in a difficult position when you lend money to a friend. They may ask you directly for a loan, or you may feel that you should offer to lend them money to help them out. Now I think it’d be better if this situation never happened in the first place; that everyone made a budget and stuck to it, set aside money for an emergency fund and built up some savings. However that doesn’t happen in real life, so it’s probably a good idea to clarify your thoughts on lending money to friends before this issue arises, so you’re not caught on the hop.

You need to decide what is the maximum that you can afford to, or are prepared to, lend to a friend. It’d be silly to jeopardise your own financial security in order to help out a friend. If you really don’t have any spare cash, then you will need to explain to your friend that you can’t lend them any money.

Maybe lending your friend some cash could actually make their problem worse, if they don’t deal with the underlying issue. Or your loan can offer them a breathing space to sort out their finances. I suppose it’s a bit like investing in shares; you have to be able to afford to lose that money (and maybe the friendship) in the worse case scenario.

I’d suggest that you agree a repayment schedule before you part with any cash, e.g. that your friend will repay so much a month for next so many months. If you don’t do this, it can become hard to broach the topic afterwards.

Have you lent money to a friend, is it something that you would do again?

2 Responses to “Should You Lend Money to Friends?”

  1. I have been thinking about this one a lot lately; not because it has become a practical issue but because, as you know, I like pondering. I come from a place where friends and family helped each other – this goes with close kinship relationships and implies that you are lending but it is not strictly speaking a loan; more like the good deed you can do and your friend/family will pay back when they can because it is a matter of honour. My Dad lent a lot of money till he passed away. His justification? ‘I can’t watch his/her children starve.’ He didn’t need a better reason, he didn’t need to arange a re-payment schedule.

    We live a a different kind of society where relationships are more formal and it is assumed that instituions lend; not that people help each other out. So we repay because failure will damage our credi rating.

    We call this progress :). Me? I am very old fashioned!

  2. I grew up hearing “neither a lender nor a borrower be” at home, so I’ve never encountered problems, because I’ve never lent any out!

    But I am generous with my time when it comes to friends, I’ve found that’s the best way to help them in the long-term, and keep them, rather than keep them hooked on my ‘welfare’ handouts.