More than half of us have seen a friendship end because of a money loan, according to a Bank of America survey. 

A poll shows that 70% of marriages argue about money.

Money can cause serious (often irreparable) damage to our relationships, which is why so many advise against lending money to a friend or family member. 

But life is not always black and white. You may find yourself one day approached by someone close to you for a loan. Before you react with a ‘yay’ or ‘nay’, pause and ask yourself three key questions.

  1. Can I afford to lend money?

    The question is not, “Do I have the amount of money this person is asking for in my bank account?”

    Just because you have the money in your checking account doesn’t mean you can afford it.

    For example, will you need this money in the near future to pay an expense of your own? What happens if your car breaks down or if you experience a layoff? Are you relying on this money to be able to weather your own financial hardships?

    If you have a friend or family member asking you for money, it’s because they have none. Their best intentions may be to repay you as quickly as possible, but they may need some time to earn enough to pay you back. Will you get repaid in a time frame you can live with?

    What if they can’t pay you back as fast as they hoped?

    What if they don’t pay you back at all?

    If you’re lending money to a friend that you had earmarked for a new car down payment or a big vacation with friends, how would a delay of payment, or no repayment at all, impact your plans?
  2. Am I willing to consider the loan as a gift?

    Mixing friends and family with money complicates family dynamics—no doubt.

    One person (the lender) is in a position of power, and the other (the debtor) carries the weight of indebtedness until the loan is paid off.

    But what happens if the loan never gets paid off?

    I know. I know. You’re thinking “This won’t happen to me.” It may not, but…

    Even if you think the chances not getting paid back are slim to none, ask yourself, “If I don’t get paid back, will that bother me?”

    When the person that hasn’t paid you back posts a vacation photo on social media, or you see them bringing an expensive bottle of wine to a family dinner, are you going to have that unpaid debt lingering in the back of your mind?

    No one can answer this question for you. It’s important you are 100% honest with yourself. If it bothers you inside, it WILL affect your relationship.

    Verbally you may agree to a loan, but unless you are willing to emotionally consider the loan as a gift, do not pass go.
  3. Is this loan ask for a “want” or a “need”?

    If you’ve honestly answered ‘yes’ to the first two questions, you know you have the financial and emotional capacity to give a loan.

    Still, with all the emotions that surround money and the way that can impact our relationships, it’s best not to tread down this path-filled-with-good-intentions unless absolutely necessary.

    If you are lending money to a friend or family, you have a right to know what the money will be used for and why this person is asking for the loan.

    Did this person have an unexpected medical bill? Did they lose their job and are in transition? These are understandable “need” situations that may have been beyond this person’s control.

    Or are they asking to help cover the cost of an airline ticket for summer vacation, a home improvement project or new furniture? Non-essential living expenses like these may feel like needs, but they are not. With good money management, your family member “in need” should be able to cover these expenses for themselves in time.

    Do not risk damaging or adding unnecessary complexity to an important relationship over these types of loans.

Give yourself space to reflect on these questions

When a friend or family member approaches you for a loan, simply say, “I need to review my finances and think about this. I will have to get back to you.”

Then walk yourself through the three big questions above. Write out your answers on paper to help fully process your thoughts. 

When you have fully weighed out the answers, you will have an answer that you can be fully at peace with. 

3 Questions to Ask Yourself Before Lending Money to a Friend or Family Member

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