Being asked to lend money to those closest to us can often put us in a financial bind. There are ways to preserve our relationships while protecting our finances. Join us as we help you help others!
You may have already been in this type of situation – a friend calls in a financial pinch. Perhaps your first instinct is to help, but lending money to friends isn’t a decision to take lightly. Done well, it can strengthen your relationship; done poorly, it can strain it tremendously.
Here’s how we recommend navigating this delicate decision with respect, transparency, and a bit of protective common sense.
Step 1: Check In with Yourself First
Before jumping to “yes,” take a moment to check in with yourself. This step is essential to protect your money and wellbeing.
Can you comfortably lend this amount, or would it put your finances at risk? Ask yourself: Can I lend this without disrupting my savings or financial well-being? Am I prepared if this loan happens not to be repaid?
To frame your mindset around this potential loan, think of it as a gift rather than a guaranteed return. Lending with the understanding that you might not see your money again sets realistic expectations and reassures goodwill from all sides.
If it feels like a stretch, remember: it’s okay to say no.
Step 2: Have a “Money Talk” Together
If you’re comfortable lending money within this relationship, it’s crucial to have an open and honest conversation about it. Although lending may feel informal, setting expectations helps avoid misunderstandings and protects your relationship. Here is a way you can approach this conversation:
- Understand the Need: Ask them to be clear on what the money is for and how they plan to use it. For example, is the loan to help them pay off credit card debt or help them with back-to-school shopping? Knowing their goals gives you both some reassurance that the loan has a purpose and isn’t just an unsustainable patch.
- Create a Repayment Plan: Before you make any money moves, agree on a timeline that feels fair for both of you. Whether it’s monthly payments or a one-time repayment, a clear plan gives both parties a reference. Keep it simple and clear!
- Set Boundaries with Flexibility: Life has its twists and turns – your friend might hit unexpected roadblocks. Avoid any hectic bumps along the journey by agreeing to sit down and reevaluate together if things change.
What you end up setting in place is a friendly understanding more than a formal contract. That way, you can confidently handle any changes or challenges that may arise with a clear understanding of the boundaries of the loan.
Step 3: Explore Non-Cash Options
Sometimes, lending money isn’t the only way to offer support. If a loan feels difficult for you, think about other ways to help that might serve your friend even better:
- Offer Financial Directions: Sometimes the solution isn’t the loan itself but the financial tools for money management. Perhaps a better solution can be found in helping them with budgeting or financial planning. This kind of support often has lasting benefits beyond a quick loan.
- Identify Opportunities: If you realize in your conversations that your friend is perhaps between jobs and would benefit from recurring income, connect them with job leads, resources, or even people in your network. Just like financial directions, valuable connections have a longer lifespan than a loan.
These alternatives show you care about their well-being while sticking to your own boundaries. Plus, they have the added benefit of empowering your friend and helping them invest in long-term, intangible assets!
Step 4: Be Ready for the “What If”
Although you have your plan, before you lend, think about what you’d do if things didn’t go as planned. If the repayment doesn’t happen on time (or at all), are you prepared to let it go? Having considered this in step 1, this is how you can think about it practically:
- Partial Payments: Would you be comfortable with them making smaller, partial payments over time if a lump sum isn’t realistic for a one-time payment?
- Forgiving the Loan: If things don’t go as expected, would you be okay with letting this loan go? Knowing your answer to this ahead of time can help you feel at peace with your decision.
If issues arise, try approaching your conversations with empathy. For example, if payments are delayed, you could start by asking, “What options work best for you right now?” This approach keeps communication open without creating immediate pressure. This mindset allows you to lend without folding to your emotions and helps preserve your bond even if the timeline shifts.
Friend First, Lender Second
Lending money to a friend is an act of kindness and confidence, not a transaction. Although the topic of money is complex it doesn’t have to cloud or complicate your friendship. Approached by both parties with the right intentions and clarity, lending can be a positive experience that helps a friend in a time of need.
Remember, you’re in the driver’s seat with the power to decide: lend or not. Start by checking in with yourself, and ease into a calm discussion before you put your foot on the accelerator. Set clear expectations and boundaries with the intention of truly helping those close to you. #BankWhereYouWantToBe!
