Is It a Good Idea To Lend Money To Family and Friends?

Money can break up families and destroy friendships. How many times have we heard or witnessed money-related fights and arguments break out between people who have known each other for years? Between old friends? Between brothers, fathers and sons? What is it about money that makes people forget their ties and turn hostile? Alternatively, helping someone out may also solidify the bond between you and the other person. You don’t need to be a certified financial professional or some financial guru to understand that money in itself isn’t dirty or wicked. It’s nothing but energy. It’s how money is put to use that decides what effect it will have.

The topic of money in itself is awkward. Tell your friends or family that you repeat positive affirmations about money, things like, “I am always surrounded by wealth”, or “I am like a magnet to money”, and they may look at you like you need medical help. Tell someone that you want to be rich and make a ton of money, and you will find them judging you or making a face. Now if you add lending money to someone to the equation and you’ve got on your hands a stinker.

However, it doesn’t need to be. Should you help someone in need financially? Definitely, and yet most resources will advise you not to. In this blog, we will cover both the good and bad side of lending money:

  1. It takes a LOT of courage to ask family or friends for money

People usually have quite a bit of pride and wouldn’t ask someone they are close to for cash unless it’s a last resort or an urgent matter. Say they may have to pay hospital fee or for college admission for themselves or their children. So consider their state of mind before saying no. Asking for any help, let alone financial, is hard for some. Remember, time is never on one’s side forever. There could be an occasion when you may need their help.

  1. It may be risky. So what?

Yes, there’s a chance that you may not get your money back or there could be a delay in getting the lent sum. Chances are, you will get the whole thing back on time and add to that heaps of gratitude. The worse scenario is you won’t ever see the money again. You can do a couple of things here: a) think of it as a gift and let it go; 2) lend only the amount of money you’re comfortable with parting, and 3) you could ask for it. It’s awkward and may still not help, but you’d have tried.

  1. Place of abundance

Consider it a blessing that you’re in a position where you can lend money to someone. Bask in that feeling of abundance. One, be grateful that you were the person your family or friend chose to come to and two, that you have enough to help someone out in their time of need.

  1. The more you give, the more you receive

The law of the universe says that if your thoughts are positive, positive things will happen to you. If you let negative thoughts and feelings to crowd your mind, all things negative will flow your way. The same applies to money. The more you try to hoard, to scrimp; the more you fear that money will slip out of your hands, the more you will bleed money. On the other hand, if you give generously, believe in your heart that you will always have money, you will receive more of it.

  1. Formalize the deal, if possible

Depending on the culture you come from (in Asian cultures, for instance, it is considered rude to bring a legal angle to money with family or friends), you could take steps to cover your bases. A certified financial planner or other professionals in the field may suggest putting it in writing, in the form of a promissory note. This note will list the terms of the loan and that way you can avoid any misunderstandings.

A financial advisor or planner may recommend charging interest on your loan, just like a  bank. That way, you would also stand to gain something out of it.

If you’re not comfortable, it is better to refuse rather than lend the money and be bitter about it. The other thing to remember here is to ensure you’re secure enough to loan money to someone else. Take stock of your financial position and only lend what you’re comfortable with. If you’re in a relationship or are married, make sure you consult your partner before loaning a large chunk of your money. That way if the deal turns sour, it won’t strain your equation with your partner. If you decide to go ahead, help your loved ones happily and generously.

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