Why Friends and Money Don’t Mix

Why Friends and Money Don’t Mix

"Friendship and money is like oil and water.” - Unknown.

Have you ever been approached by a friend or family member looking for a small loan? It can be a tricky minefield to navigate, and in some cases, could affect your friendship or relationship negatively. Before you agree, ask yourself a couple of questions. Do you trust the person to pay you back? Can you afford to write the money off if they don’t pay you back? Are you willing to risk a friendship if things go wrong? In this article, we look at what you should consider before agreeing to that loan.

Rule 1: Only lend what you can afford

It doesn't make sense for you to take on additional debt to help a friend out of a bind, so only lend what you can afford. Don’t dip into your emergency funds or your credit card. Be sure that any amount you agree to is what you can afford to pay for in cash.

Rule 2: Agree clear payment terms with a set timeline

Get specific! Sit down and agree the monthly repayment plan, including how often and how much by establishing a structure that will work for both of you. Setting clear expectations will help you avoid any miscommunication around the loan and payment terms. Most importantly, ensure your agreement is put down in writing. If your friend refuses to sign a contract, you shouldn't be loaning them money!

Rule 3: Consider what will happen if they don’t pay you back

Often, when we loan people money, they break their promises when it’s time to pay back the money or they don’t pay at all. Consider what will happen if they don’t pay you back. How will this affect your friendship? It’s worth considering whether you’re willing to write off the money loaned. Have an open, honest discussion with your friend around your feelings and how this could potentially affect your friendship.

Rule 5: Learn to say no

It's human nature, we want to be kind and liked by others. We find it difficult to say no, especially when the request comes from a close friend or family member. It’s ok to say no. If a friend asks you for a loan, gently decline by saying "I wish I could, but as a rule, I don't lend money to friends.” Let them know that it’s not personal.

Thinking about lending money to family or friends? Read this first.

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