Photo: Ollinka (Shutterstock)
Times are tough. If you’re in a financial jam, you might be thinking of approaching a trusted family member or friend to ask to borrow some money to help you get back on your feet. Or maybe your younger sibling is asking you for a loan to get them to their next payday. Proceed with caution: You may remember Shakespeare saying, “Neither a borrower or lender be,” and I’m pretty sure he was talking about borrowing or lending money to those closest to you.
Borrowing money puts you in an awkward position of feeling guilty if you’re unable to pay the other person back on time (or at all). Lending money to a friend or family member can also lead to feelings of resentment on both sides—you want to be repaid, and they get annoyed about you hounding them for the cash. In other words, get money involved, and you risk a quick souring of your relationship.
For these reasons, borrowing or lending money within a friendly or familial relationship is best considered to be a last resort. However, there are some ways to keep things from going sideways.
Get everything in writing
Before any money is exchanged, Laura Adams, a personal finance expert with Finder.com, advises thinking like a bank, and putting everything in writing: how much money is changing hands, and the terms and conditions for its repayments.
“When entering a significant financial transaction with a family member or friend, never be so casual that you skip creating a formal promissory note,” she says. “When you want to borrow money from a friend or relative, first put the details in writing, offer to pay a reasonable interest rate, and make sure they feel comfortable with what you’re asking. Properly documenting the details is critical for avoiding any potential future misunderstandings.”
Treat the loan like any other bill
Christine Luke, also known as the Financial Dignity Coach, says it’s important for the borrower to treat a loan from a friend or family member like any other bill. “Pay it on time, and pay extra if possible to repay it ahead of schedule. Communication is also key. If you’re not able to pay on time, don’t avoid the person. Be honest and see if you can rework your agreement to get back on track.”
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Adams suggests, if money is tight, to create a budget for your income and expenses that ensures you’ll have enough to repay your financial obligation to family or friends. “You might include an initial grace period in your agreement, such as starting payments several months after you receive the funds.”
Don’t lend the funds if it will threaten your own financial security
Sometimes we want to help our loved ones so much that we might lend money that we don’t have, or an amount so large we threaten our own financial security. This is a big no-no. “If you can’t afford to give your friend the money, then you can’t afford to lend it to them,” Luke says. “Not only will you risk the relationship, but you’re risking your own financial well-being. You also can’t afford the emotional and relational consequences of the loan potentially going bad.”
Luke points out that by giving money you don’t have “isn’t just stressful for the person making the loan; it’s also an emotional burden on the person borrowing the money,” and will undoubtedly harm your relationship. “If you cherish your relationship with this person, you either need to explain to them with love that you cannot risk your own financial health to help them or give them the money,” she says.
Don’t lend money to anyone with a history of financial irresponsibility or substance abuse
While you undoubtedly want to help your friend or family member, if the thought of them owing you money—or possibly never paying it back—will harm your relationship, it’s best not to go there. Which means if they have been financially irresponsible in the past, and particularly if they have a history of substance abuse that contributes to their financial instability, it’s best not to get involved.
“I know this can be hard when someone is trying to guilt you into giving them the money,” Luke says. “Sadly, some people will resort to emotional manipulation in order to get their way. We have to remember that someone else’s irresponsibility is not our problem. ‘No’ is a complete sentence. You don’t owe the other person an explanation.”
Just don’t do it
However, if you know that you might be likely to cave into someone’s sob story for financial assistance, Luke recommends establishing a personal policy of never lending money to (or borrowing it from) friends or family members. “When someone asks, simply say, ‘I have a personal policy never to lend money to friends or family. My relationships are too important to have money come between us.’”
Ultimately, it’s crucial to keep in mind that whether you’re the borrower or the lender, your relationship might feel strained until the loan is repaid. “If you have another alternative, like borrowing from your bank or credit union, that might be the way to go,” Luke says.
