Lending money to friends and family is a tough situation. Perhaps you want to help someone with a geniune need, but you’re not sure if they’ll actually pay you back. Both parties are put in a tough spot. How do you handle it? Since I think most people are inclined to want to help out, I include some cons to loaning money.

It’s up to you to weigh the options and come up with the right answer for you.

Some Reasons NOT to lend money.

1. You can’t afford to lose the money. If this loan will be a strain on your finances and family, then don’t loan money.

2. You will not be able to see your friend in the same light and it puts a strain on your friendship.

3. Your friend will keep looking for a way to repay due to guilt or they’ll resent you for giving the loan.

4. You can become an enabler of his/her bad spending and non-savings habits. Some people just don’t budget well and giving them money will not solve that problem.

What you can do:

• Don’t loan them the money. If giving them money would make it worse, then don’t loan them the money.
• Give a smaller one time gift. Remember give what you can lose. It removes the tension of being in debt to someone without you going in debt.
• Share with them some ideas on how you budget. Sometimes it’s a matter of helping one learn to fish. Without pulling out numbers, just show them the basics of budgetting. Be careful with how you approach them with this. Nobody wants to feel like a fool.
• Share with them some ideas on how you cut costs. Be tactful and show them what money saving habits you’ve developed.

If you do loan the money:

• You have the right to have it put into writing.
  • Include how much is going to be repaid, how much each payment is, and how frequently they’ll pay. It’s not just a protection for you, it’s to help clarify what the plan is.
  • Having this can reduce having awkward conversations.
• You have the right to know why you’re loaning them the money. Is it for neccesities or it for vacations or a business venture? Obviously having this information will determine if you loan the money or not.

It’s ultimately your decision, but please consider it carefully. Have you given or received a loan between family or friends? How did it turn out?

Some references:

• Lending money to a family member
• When Should You Say No to Those Who Want to Borrow Money from You?

Photo Credit: Pwbaker

• Alternatives to Payday Loans Payday Loans and Problems Payday loans are part of a routine for some people making minimum wage and/or have expenses exceeding their income. While I try not to advertise payday loans (Google Ads might slip one or two), wishing them away isn’t going to help. Payday loan centers are......
• January 2009: Progress Update Photo Credit: jurvetson This post was included in the Carnival of Personal Finance at Dollar Frugal.   A new year has started and it's already feeling pretty good. It's not that things have been going smoothly (for example, my brother's car broke own on his way to see us and......

• Bankruptcy Creditors Sometimes Lose Their Children's College Education Money When Trying To Help Other People! Sarasota bankruptcy attorneys are not responsible for your conscience when you choose to walk away from real people who loaned you money. In the forums the other day, I received the following question from a member about bankruptcy and getting hired after filing bankruptcy: This question forced me to relive......
• How to Get Rich Leveraging Debt How many stories have we all heard about the entrepreneur that came to America with five cents and turned it into an empire? It’s stories like this that make us long for a piece of that American dream. We all wish that we could turn our nickels into big money,......