Borrowing From—And Loaning To—Friends And Family

Ah, what an awkward situation—over the phone, or whispered at your desk, or asked face to face over beers at your weekly hangout. What’s the best way to respond when someone you love (or at least like to some degree) wants to borrow money? And what if you’re the one in need? Betterbudgeting.com offers some advice on when to loan and when to figure out whether you’re just enabling a bad habit.

To begin with, says the tough-love Larry Wiener (or simply “Tough Wiener” as he will now be called), when you’re asked to loan money you should ask yourself whether you’re funding a continuation of a lifestyle or a change, and whether the change is one you want to fund. If you’re helping someone recover from a mistake he makes repeatedly, it might be better to let him learn his lesson the hard way; on the other hand, if your assistance can help increase the odds that he’ll improve his life—and if you’re confident he will be able to pay you back—then it’s a wise “investment.”

If you’re the one borrowing, pay special attention to how your actions could be perceived, says the UK Insolvency Helpline. If you’re seen wildly spending money on unnecessary purchases, you could sour what was a good relationship. Also, be aware that your ability to pay back a loan may directly impact the finances of the lender, so commit to making regular repayments according to terms you both agree to, and stick to it.

Ezine articles offers advice to entrepreneurs seeking start-up funds, but it applies to personal loans as well: gauge the way your potential lender says yes. “An apprehensive yes may mean yes because of your relationship. But otherwise it would have been no. You could allay that apprehensive yes by offering to secure the loan” with a car or other item. (Hey, nobody said borrowing money was supposed to be easy.)

“When Someone Wants to Borrow Money” [Betterbudgeting.com]
“Borrowing from friends and family” [UK Insolvency Helpline]
“Borrow Money From Friends, But Pay Special Attention To The Promissory Note” [Ezine Articles]
(Photo: Getty)

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  1. liquisoft says:

    I think the best way to handle friends or family that ask for a loan is to simply give them the money and not expect repayment. I’ve heard far too many stories of people lending their friends money only never to hear from them again. Lending money puts a strain on relationships, so it’s best to simply give them the money as a gift.

    With this in mind, it’s probably not feasible to give out $5,000. If it were a loan, you’d think “well he’s going to pay me back, so it’d be no big loss,” but since it’s a gift you’ll think twice before handing out anything beyond $100.

  2. ArtDonovansLovechild says:

    With family , I agree, If you have the ability to do it, make the loan, hope for repayment, but expect nothing. I hit hard times while I was in college, and had an aunt lend me some money. It took me a number of years, and she didnt bother me, but eventually I was able to repay her in full. It led to know hard feelings cause she knew I wasnt spending money crazily. I also refused to borrow from some friends who offered, since I knew it would take a while to repay and that damages friendships.

    Meanwhile a former employee of mine borrowed $2000 when he missed a commission check and needed to cover some bills for 2 weeks. 14 months later hes stopped answering emails and changed his cell. To court we go.

  3. Sudonum says:

    I lent my sister $2500 about a year ago. Her car got repossessed. A long convoluted story, lets just say she likes Starbucks, ALOT. I really didn’t expect to get it back. I had a long talk with her about her spending habits, and how she pisses he money away. She agreed, and said she knew she couldn’t spend money like that anymore.

    Well, lets just say that she had a hard time breaking her Starbucks habit and the car got repo’d again. She knew better than to ask me for more. I was pissed. But like I finally told her; I am more pissed at myself for actually believing that she would start changing her life, than I am for her basically pissing the money away.

  4. Tacoma would of known ya says:

    When my sister graduated from college I loaned her some money for a deposit on an apartment, basically because I didn’t want my newly retired parents to shell out the money. It took her a couple of years (and jobs) but she eventually paid it back.

  5. synergy says:

    I’ve lent money with the stipulation that I will get my money by X date or else. If X date happens and I don’t have my money, I will give remind them, and if I still don’t get my money, I repo something of equivalent value. I had to do it once. Her roommate (who knew about the agreement) let me in and I took a stereo in repayment. By the time they got home to find their stereo gone, it was at the pawn shop and I had my money. No one who knew me and heard about it was late on borrowed money again.

  6. MercuryPDX says:

    Said this in another thread, but worth repeating.

    DO NOT EVER “loan” money to a friend or a family member. You can either give them the money with the expectation that it will not be paid back, or don’t.

    DO NOT EVER cosign for a loan with a friend or family member. They WILL NOT change, you are NOT HELPING you’re enabling them to go further into debt and drag your kind-hearted ass down into the credit rating netherworld with them.

    If the comments above are not proof enough, watch Judge Judy for a few weeks and you can see this in action.

  7. evanchsa says:

    Check out [circlelending.com] as they advertise mechanisms to loan to family and friends. I heard about them on NPR.

  8. mac-phisto says:

    generally, i’d say if they’re already in trouble, take the money & book a vacation instead. it should all blow over by the time you get back.

  9. SaraAB87 says:

    This is a tough one for me, I recently had a friend keep asking me to borrow money and asking me for rides around in my car since I own a car. I will just tell you owning a car (even if its just a junker) and going to community college is very tough, as you will have to constantly refuse to give people rides. Needless to say he is not my friend anymore, as I got really sick of the begging, and if I lent him money, he would just keep asking me for more money, and that is a very bad habit to get into. I cannot count the times I have had to refuse to give money to people, especially when they have no means to pay it back.

  10. othium says:

    A friend who lives in the same apartment as I asked to use my car for a few days. It seemed like a safe loan but my other friend told me this person had some “issues” with responsibility and I checked on my car that evening. The door was unlocked and the ignition key was still in it. I took the keys and locked the door. He told me that he had trouble getting it out of the switch and didn’t want to lock himself out accidentally. WTF? I learned from that experience to never lend my car to anyone again.

  11. Rusted says:

    No… if someone’s in real trouble, an outright gift is best. If they aren’t careful with money, the only thing that will “learn em” is for them to hit bottom. Learned that the hard way.

  12. Eliamias says:

    I’m in two camps. Personally I lent money to a friend a LOOONG time ago and still haven’t been paid back, but I have no quarrels.
    a) she COMPLETELY turned things around and changed her spending habits (which were pricey let me tell you)
    b) she feels horrible about it and keeps mentioning it to me and is socking money away slowly.

    Personally for her to have changed her ways makes it money well spent, even if I never see it again. I’m not missing it, she feels a sense of responsibility towards the debt and she’s not going to find herself in that situation again. Hasn’t ruined the relationship one iota either.

  13. Cowboys_fan says:

    @MercuryPDX: It really depends on who your family/friends are. If any of my family members borrowed money, they would pay it back, thats just who they are. I’ve borrowed money from my family, and had my mom co-sign a few things, and I paid back as expected and the co-signs worked fine.
    Friends, IMO, don’t get as much(loans) as family. I figure if it only costs me $100 to realize who you are, then its money well spent. If you pay me back on time, then next time I’d be more likely to loan more.
    It comes down to a combination of being a good judge of character, and not loaning/borrowing money that you cannot afford to lose/pay back.
    Yes I’ve watched Judge Judy but not everybody is Springer-like white trash. Plus I doubt I would ever sue a family member, even if they were.

  14. DaWezl says:

    I’ve essentially gifted money to some friends that work really hard, but due to health issues (and job losses b/c of the health issues) were having trouble making ends meet. I knew when giving them the money that I would probably never see it again, and of course I haven’t. But they’ve done what they can (i.e. helping us around our house) to try and make up for it. OTOH, I won’t give/loan money to a certain relative b/c they end up asking to be bailed out every 2-3 years from some financial mishap, yet they are constantly taking trips, buying things, and generally frittering away money when it does come in. If they call me asking for money, I say “I’m sorry you are having these troubles. I can’t lend any money right now, but if you’d like some help Ebaying some stuff or if there’s any other way I can help you out, I’d be glad to assist.” Funny thing is, I’ve never been asked once for THAT type of help, lol.

  15. Jacknut says:

    I have to go with the Bard on this one:

    Neither a borrower nor a lender be;
    For loan oft loses both itself and friend,
    And borrowing dulls the edge of husbandry.

  16. King of the Wild Frontier says:

    You should only loan to family and friends if you’re willing to take a very realistic look at how they came to be in debt in the first place, whether or not it’s a pattern, and what experience other family or friends have had with them. The family member of mine who has borrowed money from me and never returned it has done the same with every other family member with a soft spot in their hearts, and he hasn’t repaid a one of us. If you know that they won’t pay you back but give them the money anyway, then you’re just letting them cash out the friendship.