What to Look for Before Lending Money to Family or Friends
Nothing sucks the air out of a room like a relative asking you to borrow money. No matter how much you love your family, the prospect of lending them your hard-earned money can be at best inconvenient.
How can you separate these feelings from cold and harsh logic if someone close to you asks you for a loan? Follow Susie Orman’s instructions.
I know. Orman drives me crazy half the time about how black and white she is when it comes to financial matters. But her blog post has some solid advice on evaluating a friend or family member’s loan request.
Here are three questions that Orman invites himself to ask himself:
- Will the loan really help this person?
- Can you honestly afford to help?
- Are you comfortable thinking of money as a gift rather than a loan?
The first is related to the requester. Are they really in financial trouble, or are they imposing these troubles on themselves by repeating bad decisions? If this person has proven that they are generally responsible for the money – or are making a measurable improvement in doing so – it may be worth helping them.
But the other two questions boil down to you. If you are spending your savings to help someone else, who will help you if you get stuck and don’t have the money? Are you so comfortable that you have some extra money to give away and will probably never be seen again? By the way, this is the third part. Orman says all loans must be paid back, but tracing a family member for the cash you lent him can make you regret everything.
If you do decide that this person and their situation is worth the loan, be sure to indicate this in writing, indicating the due date . Yes, you should still treat money like it’s gone in the worst-case scenario (like your cousins ghost on you forever). But getting a contract makes it clear that you are serious about your money – and the borrower owes it too.