6 Questions I Ask Myself Before Lending Friends or Family Money


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  • When friends or family members ask to borrow money, I ask six questions to decide.
  • If I had the money available, I would ask myself if I was interested in whether it was paid, and whether not paying would harm the relationship.
  • I also think about how the funds will be used, and then determine the terms of repayment.

In the fall of 1993, shortly before my fourteenth birthday, my father and I went to see “The Bronx Story” at the dispatch complex near our house. One The scene that made an impression It happens when the protagonist, Kalogero, discovers a man named Louie who owes him $20. From across the street, Calogero puffs at Lowe to push, throwing threats and insults while Lowe rejects excuses and runs away.

Kalogero’s mafia mentor, Sonny, sees this confrontation developing and gets involved. “Is he a good friend of yours?” Sony asks.

“Nah,” Kalogero replied, “I don’t even like him.”

Sonny has a few prize tips that have stuck with me ever since. “Look at it this way,” he replied. “I cost you $20 to get rid of him. He’ll never bother you again. He’s never going to ask you for money again. He got out of your life for $20. You got off on the cheap, forget it!”

Sony’s lesson was remarkable. You have taught me more than a simple strategy for cutting unwanted relationships, that being in debt or in debt is much more than payments and credits.

Lending and borrowing money has social, ethical, legal and other ramifications to go along with the financial implications, and ignoring any of them can create problems. That’s why when someone asks me for a loan (or sometimes when I need to ask for a loan myself), I try to look at the big picture. These are the factors I consider.

Do I care to be paid?

I often prefer giving to lending, especially for small amounts. If a friend forgets his wallet when we have lunch, I’d rather make it my treat than lend him his share of the bill with the expectation of reimbursement. I think kindness like this tends to come off, but even if it doesn’t, I’d rather extend a little goodwill than stalk every time someone owes me a few dollars.

This approach works for most of my day-to-day dealings with friends and family, but I try not to share my point of view with everyone. I know some people who are adamant about paying back even the smallest amount, so while I may not care if I get my money back, they do. If making up for me is important to someone, I don’t quarrel about it; I will not force them for their hospitality.

Can I afford to lend money?

Of course I can’t lend money that I don’t have, but just because I have money doesn’t mean I can (or should) lend it.

Years ago, a friend of hers asked for a $4,000 bridging loan for her business. I was confident in her intent and ability to repay immediately, but at the time, that amount included most of my liquid money. I would have been in an awkward position if I suddenly needed money – as if I were I lost my job Or I had to replace my car. As much as I wanted to help, and even though the loan was short term, I didn’t think exposing myself to these risks was wise.

This experience helped me formulate a rule of thumb for myself: If lending someone could put my money at risk, I don’t.

If I expect repayment, how likely are I to get it?

I’m not a bank, so I don’t scrutinize personal loan applications as thoroughly as a mortgage application underwriter does. But I’m also not a charity, so when I lend money, I should at least consider the possibility of default.

Unlike financial institutions, I put more credit in social credit than I do in quantifiable criteria such as assets and repayment history. Social pressure can be just as compelling as a written contract, which makes me more confident in getting reimbursed by the people in my circle. I will lend money to my close friends and family without a second thought, but this circle also extends to a larger community.

Case in point: I once covered a few hundred dollars for an acquaintance’s expenses on a road trip on the understanding that he would have paid me when we got home. Collecting that debt turned out to be a challenge, but in the end, staying on good terms with me and our mutual friends was more valuable to him than money. Otherwise, I doubt I would have seen a cent of what I owed.

What happens if you no Get paid?

One of the common things about lending is that you should never let someone borrow more than you would like to lose. I agree with that sentiment, but my concerns about the loss aren’t just financial. Unstable debt can be a source of contention even in strong relationships, and I hate my financial support to generate tension, resentment, or alienation from someone I care about.

A close friend of mine recently had to Pay a large medical bill Out of pocket, and you don’t have cash on hand to cover the entire amount. He was a bit embarrassed to ask his family for help, so he asked if I’d loan him the remaining balance instead. Again, I knew he intended to refund my money, but I asked myself what would happen if he couldn’t? Will I feel good about suspending or forgiving debts for the sake of our friendship? I decided I would, and while reimbursement never became an issue, I was glad I thought about it.

This experience helped me formulate another rule for myself by adapting the above: Never let someone borrow so much that I risk losing they above it.

How will the money be used?

Money is a tool, and I want to use the money I have to find a lasting good, so regardless of how lending affects my finances and my relationship with the borrower, I am aware of the broader consequences. I am happy to make a loan for someone to start a new business or help in an emergency, but I am reluctant to offer money that would be frivolously spent or enable bad behavior.

Once, a relative who was famous for his poor money management skills asked for a loan to pay some off High interest credit card debt. Although I totally supported the idea, paying off the debt with my money seemed like a cure for the symptoms rather than the disease, so to speak. Given his track record of overspending, I’m afraid he’ll keep accumulating more debt and back to square one. Lending him money didn’t seem to be the best way to help.

Instead, I offered to advise him to find a permanent solution. I helped him transfer his credit to credit card with 0% annual interest rate (to make room to breathe), and you train him better Money management skills To prevent him from repeating previous mistakes. The result wasn’t flawless, but it worked, and I felt so much better about it than I would have gotten by just handing over the cash.

What are my terms?

When I give a loan to someone, I don’t just hand it over. My money generally comes with a variety of expectations, and setting them clearly beforehand helps me avoid conflict and confusion later.

The most important part of the loan agreement for me is knowing how and when it will be repaid. If I loan someone cash, I probably don’t want a refund gift cards, so I like to specify the method of payment even if it seems obvious. I would also like to set a repayment schedule. I may accept the installments, or I may prefer a full one-time refund for simplicity; Either way, I want to be clear from the start.

I’ve never charged interest on a loan, partly to be nice and partly to avoid tax implications. However, she accepted offers to pay off a loan with a service on top (such as a homemade dinner or tickets to a sporting event).

I am satisfied with informal verbal agreements when dealing with close friends and small sums, but I like to put conditions in writing otherwise. I’m more interested in documenting the arrangement than crafting something that will hold up in court, so I’ve always felt that a printed and signed contract seems like overkill. Simple email confession works for me


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