One of your friends has suddenly called you out of the blue. It’s not like you have a terrible relationship with the person so you pick up. Within a few moments of the conversation, they ask you if they can borrow money.
You tell them you’ll have to think about it and leave the phone call at that. After factoring in bills and other expenses, you decide you could loan the money. Do you want to though?
There are a million problems that could come out of loaning money to a friend, no matter how close you are. Here is a quick list of reasons why you should respectfully refuse your amigo’s request.
1. You’re Their Last Resort
If your friend calls you asking for money, it often means the bank turned them down for a loan. You are their absolute last resort. That doesn’t bode well.
If the bank has turned down their request for a loan, it means they’ve judged it to be a risky investment. If it’s a dangerous investment for them then it’s probably a dangerous one for you as well.
2. You’ll Most Likely Never Get Paid Back
When you loan money to a friend, there’s always that small voice in the back of your mind telling you you’re never getting paid back. Listen to this little voice because it’s most likely right.
If you decide to give money to a friend, the safe bet is to think of the money as a gift and then factor it out of your life. This way, if you get paid back you’re pleasantly surprised. If you don’t, you’ll only be a little bit disappointed.
3. You May Be an Enabler
One of the riskiest parts of loaning money to a friend is becoming an enabler. It’s fine if it’s a one-time thing to help them get caught up on their rent or to buy a few groceries to get them through the week. But if it becomes a frequent occurrence, you have a problem.
If they think you’re going to help them every single time a bad financial decision leaves them short on their bills, then they will keep making bad financial decisions. They’ll never learn from their mistakes.
4. Something May Come Up
You can afford to give friends money right now, but what about the future? Unfortunate circumstances can arise at any time. When you lose your job or your car breaks down, you’ll be wishing you had the money in your now empty savings account.
Depending on how bad your situation is, you may end up in the same position as your friend. It’s a never-ending cycle.
5. It Can Ruin Your Friendship
Depending on how much your loan to your friend, they may pay you back in installments. This is all well and good until they miss their first payment. You end up having to have an awkward conversation with them that doesn’t end well.
After more than a few missed payments, these awkward conversations will turn in to angry ones. Your friend will start trying to avoid you at all costs to prevent the need for confrontation.
Soon, you’ll stop speaking altogether. Now you’re missing your money and a good friend.
6. You May Not Have the Right Personality for Lending Money
Going off our last point, it’s important to consider the type of person you are before you lend money. If you’re someone who hates confrontation then you’re more likely to let disdain build up instead of contacting them about the money. This will cause a strain that will again, lead to a fight.
If you have a more abrasive personality then you may start an argument as soon as they miss the first payment which is no good either.
7. They May Spread the Word
Your friend may not mean any harm by mentioning your generosity to another friend, but it could turn into a problem all the same. That second friend may decide that they want to try and take out a loan with you, too. It’s hard enough giving money to one friend without another trying to jump on the bandwagon.
That’s why if you do decide to loan a friend money, ask them to keep that information between you and them. Get it in writing if you have to.
8. They May Request More Later
If you give money to your friend once, they may get it into their head that you have tons of money to throw around or that you’ll be able to help them anytime. The next time they start to have problems with money, they’ll come back to you again because they think they can.
You can always tell them no the second time, but the best way to get around this confrontation is to never lend them money in the first place.
Reconsider Loaning Money to a Friend
Loaning money to a friend is all well and good until problems start to come from it. They may stop making payments or keep asking for more money, which will put a horrible strain on your relationship.
You may feel a twinge of guilt for not helping. But it’s better to avoid the trouble and keep your friend. As a general rule, reconsider loaning money to friends and/or family.
Did the pointers you read here help you make this important financial decision? Glad to hear it! Check out the lifestyle section of our blog every day for more tips like these.