I was recently asked for a loan from a good family friend, which made me feel uneasy. I wanted to loan the money, but I also knew that if I loaned the money, it would create a lender-borrower situation that would become an uncomfortable combination.
For me a lender-borrower relationship is a business transaction. The one I have with my bank for my mortgage. This relationship does not make me feel warm and fuzzy. There is no emotional attachment. But, when you lend money to family or friends, you add an emotional dimension to the equation.
I believe in helping friends and family when they are in need. However, I also make the following assumptions when lending money to friends and family:
Assume that you are not going to be paid back: I think of the money I am lending as a gift because research has shown that high portion of personal loans are never repaid and if you expect to be repaid, you’re going to be disappointed. I do not want any negative energy to erode my relationships.
Friends don’t charge friends interest: Interest is oppressive. Nobody should feel oppressed, especially your friends and family. Do not take advantage of your friends and family by asking them to pay you more than you lent them. You are not a bank
Never loan money you may need in the future. If you’re going to need that money to survive, don’t lend it. Only lend money that you could live without; money that would ordinarily go to non-essential items.
Make it clear that you are not worried about when you’ll be paid back. Make it clear that they can repay you on their own terms. When you start setting terms, you are creating a lender-borrower situation. Let them pay you back when they can.
Don’t lend money to the same people more than once. Make it clear upfront that you won’t loan to them until this is paid back. You do not want to become a well of support. A loan is just that – a single shot of money intended to help them right their ship again. You are not a means for them to get by. You are not a method by which they don’t have to start taking responsibility for their actions.
Don’t allow them to treat you differently because you helped them. Once you’ve loaned the money, don’t bring it up. Do not leverage the loan by taking advantage of friends and family. Do not remind them that you lent them money. Give the loan and forget about it. Only bring it up at the time when the loan is due.
Don’t let money get in the way of your friendships or family. Avoid lending money if you can, and if you must, make it as unobtrusive as possible. Don’t damage your relationships; instead continue to be part of their process of fixing their life. After all, it is only money…people come first.