Principle 12. Lending money to friends and relatives.


“Be careful about lending friend money. It may damage his memory.” ~ unknown.

It’s difficult to watch your friends or relatives struggling financially. If you’re well off and good at heart, you might want to reach out to them as well. There’s nothing wrong to lend a helping hand. Infact, we are supposed to help them in whatever way you can. That’s helping – quite different from lending. When you help them with an amount, you don’t expect it back. It could be a small amount. It’s ok if you don’t get it back.

But lending is different. You lend money when your friend or relative officially asks for some money, stating a purpose and with a repayment term loosely said ‘I will return it as soon as possible’.

What happens in such situations is that you will be held up in a dilemma-

  • It would be difficult to say ‘no’ given the depth of relationship between you guys
  • It would be difficult to ask for a written agreement.
  • If you are good in finance, you may also have a calculation of the interest that might be lost at the back of your mind
  • Since the repayment terms says ‘as soon as possible’ and not a definite date, practically it could prolong for an indefinite time and you may feel very awkward to remind him about your money.
  • If you don’t help him, you might just lose that relation also.

It’s actually a trap. If you have lend money like that, you have only two solutions left –

  • Politely ask back the money indirectly.
  • Write it off !

HERE’S SOME TIPS

Remember, it is your money. Whether you decide to lend the money is up to you. Here are some tips that will help you take a decision to lend or not.

  • Ask your friend why he needs so much of money? If he cannot give a genuine answer immediately, he’s hiding something fro you.
  • Watch what he is answering! if he needs fund for a medical emergency, consider helping him. But if he needs funds to pay off another person from whom he has borrowed money or to settle some financial deals which you find is not proper, you need to think twice.
  • Think about how he has dealt with money in the past. Is he a reckless spender? Is he constantly in a debt trap? What has he done with his salary so far? Does he party all night and lives a lavish life ? If you are not comfortable with his life style and attitude, stay off. Politely say that you can’t lend him money.
  • If he asks for a huge sum which you cannot afford, say no immediately. Also if he’s asking funds because he knows that you’ve got a loan from elese where, do not lend.
  • Remind him about the money, just before the due date. Politely say that you’ll need the funds very soon. I case he couldn’t make the payment on that day, ask him when you can expect the payment. Let him say a date. Also let him explain the reasons why he couldn’t give you the payment as promised.
  • Based on what he has explained, set another date and time and tell him that he cannot miss the date this time. Always keep your cool and never let show any frustration. Keep a broad smile on your face while asking back your money. There should not  be any mistake from your part.
  • Visit his home. Indirectly tell his parents / siblings / spouse that there’s some money deal between you and him. That would automatically create pressure on him.
  • If you really want your money back, keep pressuring indirectly but at the same time never utter a rough word or show a frustrated expression. Once he gives your money back, it’s possible that you guys may not be friends any more. Carefully think if this situation is going to have any negative impact – at work place or between other friends.

CONCLUSION.

Experts warn that loans given to friends or relatives ca lead to strained relationships.

With the following words, we sum up our advice about lending money to your friends / relatives:

  • If you can afford to lose a friend, go after your money ;
  • if you can afford to lose your money , lend as much as you can ;
  • if you cannot lose both, try to strike the golden mean !”

You may like these posts:

  1. Principle 1.Finding money !
  2. Principle 2.Time value of money
  3. Principle 6: Never stretch beyond your limits.

7 Responses to “Principle 12. Lending money to friends and relatives.”

mbeya njenga

May 23, 2013 at 4:50 pm

Thanx alot. you’ve helped alot

Ninad Nashikkar

June 9, 2013 at 1:39 am

Good one. Very well written.

hanuma

June 27, 2013 at 5:49 pm

I am impressed by the sentence from one of the bullets “Keep a broad smile on your face while asking back your money. There should not be any mistake from your part.” i feel only people experienced such situations can say this words. even i frustrated once regarding the money matter with my friend later i felt bad at my part.

J Victor

June 27, 2013 at 9:03 pm

yes. :) i have put in all my experiences into all my posts :)

Manish Gupta

October 11, 2013 at 2:11 pm

Good One.

Venkat

April 7, 2016 at 3:55 pm

#1: Friend X said it was an emergency and asked an amount. (Note: He had already bought a house and I was trying to accumulate the 20% needed for the home loan.) I dipped into that home savings and gave him the money. He did give back the money.
#2: Friend X again said it was an emergency and asked a slightly higher amount. But this time I was determined not to affect my plan to give him the money. So, I said I am unable to source it
#3: I heard from a common friend Y that X had taken a huge amount as loan from him and not even a small instalment was being returned even after long time. Ultimately after lot of persuasion and family visits the money was returned.
#4: By this time, both Y and myself were not sure about what X was doing with the money. Our assessment was X was speculating in the market with borrowed money.
#5: X again came to me for loan. I said I don’t have.
#6: X again came and cited an medical emergency for loan.
But by this time had lost faith in him and just said that I am unable to muster.
Thankfully, friendship still stands. Though meeting frequency has decreased than before.

prashant

September 2, 2016 at 8:24 pm

Hi Victor,

Very nice writing by you. Till now I have completed this 12 topics and i found them very useful. Keep writing and best luck for you.

Thanks,
Prashant

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