If a friend comes to you for help, lending money seems like a sensible option at first. That’s especially true if it’s someone very close to you who you think would never let you down. But, even though there are some upsides to lending money, it’s hard to justify the risks. Here are ten things that will happen when you lend money to friends.
1. Your friend will appreciate you.
It’s always nice to feel appreciated and, especially at first, your friend will be grateful to you for lending the money to them. It gets trickier when it’s time for them to pay you back, but at first it can make your relationship stronger.
2. You’ll feel good about yourself.
A selfless act like lending money to your friend is sure to give you some warm fuzzy feelings. It’s nice to be able to help out someone close to you, and the satisfaction of doing a good deed is often worth the sacrifice.
3. You don’t earn any interest on the loan.
Let’s consider reasons why lending money might not be good idea. One less-than-selfless reason is that whereas at a bank you accrue interest on your money, when lending money to a friend the value of it decreases over time due to inflation. That means even when you’re paid back in full you’re still in the red.
4. You might want the money.
We all want nice things. Chances are, you’ll be able to buy less nice things after lending money to a friend. This is less than ideal, though hardly enough of a reason not to be lending money to someone. The reasons that follow, though, will make a much more convincing case.
5. You might need the money.
Fortunes can turn very easily. Yours might if something unexpected happens like a medical issue or the loss of a job. At that point, you might really need the money you loaned your friend in order to support yourself and your family. But, even if your friend is now in a better place financially than you are at that moment, there’s no guarantee that you’ll be you’ll get your money back when you need it.
6. The due date tends to shift.
This is if you have a due date at all. If you ignore this advice and lend money, at least set a due date. But even if you do, the problem remains that your friend will feel less pressured to pay you back because of your prior relationship. That’s natural; your friend might not realize how big of a deal returning the money is to you. They feel like they’re waiting to do it when it’s convenient for them. Heads up: it will never be convenient for them to return a significant sum of money.
7. Your friend is more likely to ask for a loan again, or a loan from others.
A lot of the time lending money just encourages people to rely more on others than they did before. That’s not their fault; it’s very easy to becoming dependent on others instead of shouldering all the burden yourself. If your friend does fall into this all-too-easy bad habit, they might even ask you for another loan. If you don’t grant it, they’ll move on to others who might.
8. It’s a hard subject to bring up.
It’s uncomfortable enough for a creditor to call someone up and request payments, it’s another thing entirely to broach the subject if someone close to you isn’t showing any inclination that they’re going to pay you back anytime soon. That money might create a wedge between the two of you. That’s why lending money leads to further problems than just a hit to your checking account.
9. It can ruin your relationship.
This is one of the most significant risks of lending money to friends. If your friend can’t pay you back or, especially, if they won’t pay you back, you’ll start to resent them. Even if you don’t think you will, you will. That resentfulness isn’t worth it when there are likely other ways you can have their back.
10. You can help your friend in other ways.
Lending money isn’t the only way to solve someone’s problem. In fact, throwing money at a problem can oftentimes (though not always) be the most shallow way to take care of it. To pull out an oft-quoted metaphor, don’t give your friend a fish. Teach them how to fish for themselves. With your professional and personal help they might be able to benefit in ways like landing a better job or developing healthier spending and saving habits. There are definitely some dire situations when lending money to friends is the best choice (such as if you’re in debt to a loan shark), but if lending money can be avoided, you should steer clear.
Featured photo credit: Money Wallet/401(K) 2012 via flickr.com