If a friend comes to you for help, lending money seems like a
sensible option at first. That’s especially true if it’s someone very
close to you who you think would never let you down. But, even though
there are some upsides to lending money, it’s hard to justify the risks.
Here are ten things that will happen when you lend money to friends.
1. Your friend will appreciate you.
It’s always nice to feel appreciated and, especially at first, your
friend will be grateful to you for lending the money to them. It gets
trickier when it’s time for them to pay you back, but at first it can
make your relationship stronger.
2. You’ll feel good about yourself.
A selfless act like lending money to your friend is sure to give you
some warm fuzzy feelings. It’s nice to be able to help out someone close
to you, and the satisfaction of doing a good deed is often worth the
sacrifice.
3. You don’t earn any interest on the loan.
Let’s consider reasons why lending money might not be good idea. One
less-than-selfless reason is that whereas at a bank you accrue interest
on your money, when lending money to a friend the value of it decreases
over time due to inflation. That means even when you’re paid back in
full you’re still in the red.
4. You might want the money.
We all want nice things. Chances are, you’ll be able to buy less nice
things after lending money to a friend. This is less than ideal, though
hardly enough of a reason not to be lending money to someone. The
reasons that follow, though, will make a much more convincing case.
5. You might need the money.
Fortunes can turn very easily. Yours might if something unexpected
happens like a medical issue or the loss of a job. At that point, you
might really need the money you loaned your friend in order to support yourself and your
family. But, even if your friend is now in a better place financially
than you are at that moment, there’s no guarantee that you’ll be you’ll
get your money back when you need it.
6. The due date tends to shift.
This is if you have a due date at all. If you ignore this advice and lend money, at least
set a due date. But even if you do, the problem remains that your
friend will feel less pressured to pay you back because of your prior
relationship. That’s natural; your friend might not realize how big of a
deal returning the money is to you. They feel like they’re waiting to
do it when it’s convenient for them. Heads up: it will never be convenient for them to return a significant sum of money.
7. Your friend is more likely to ask for a loan again, or a loan from others.
A lot of the time lending money just encourages people to rely more
on others than they did before. That’s not their fault; it’s very easy
to becoming dependent on others instead of shouldering all the burden
yourself. If your friend does fall into this all-too-easy bad
habit, they might even ask you for another loan. If you don’t grant it, they’ll move on to others who might.
8. It’s a hard subject to bring up.
It’s uncomfortable enough for a creditor to call someone up and
request payments, it’s another thing entirely to broach the subject if
someone close to you isn’t showing any inclination that they’re going to
pay you back anytime soon. That money might create a wedge between the
two of you. That’s why lending money leads to further problems than
just a hit to your checking account.
9. It can ruin your relationship.
This is one of the most significant risks of lending money to
friends. If your friend can’t pay you back or, especially, if they won’t pay
you back, you’ll start to resent them. Even if you don’t think you
will, you will. That resentfulness isn’t worth it when there are likely
other ways you can have their back.
10. You can help your friend in other ways.
Lending money isn’t the only way to solve someone’s problem. In fact,
throwing money at a problem can oftentimes (though not always) be the
most shallow way to take care of it. To pull out an oft-quoted metaphor,
don’t give your friend a fish. Teach them how to fish for themselves.
With your professional and personal help they might be able to benefit
in ways like landing a better job or developing healthier spending and
saving habits. There are definitely some dire situations when lending money to friends is the best choice (such as if you’re in debt to a loan shark), but if lending money can be avoided, you should steer clear.
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