4 Tips for Lending Money to Family and Friends

When friends or family members ask us for a loan, things can get sticky. We want to say yes, but it might not be in our best interest — or in the best interest of our loved one. Whether you’ve turned down a request for a loan or you’re wondering how to navigate lending money to a friend or family member successfully, these tips can help.

When times are tough for your friends and family, they may reach out to you for financial assistance. It isn’t easy to turn your loved ones away, but it isn’t easy to be on the giving side of a loan either. Things can get sticky quickly, from saying yes to a request, to creating a payment plan and asking for money that’s overdue.

Lending money to loved ones without risking your relationship or your money can be challenging but it’s not impossible. To help you out, we’ve compiled four tips for successfully lending money to family and friends.

1. Don’t Respond Immediately

If a friend or family member has reached out to you for a loan, it’s best not to give an answer right away. Your natural instinct may be to agree to the loan, especially if you’re in a good financial place, but it’s best to consider it carefully before saying yes. Can you really afford this loan? If you share finances with a partner, will they be OK with this loan? What if the loan is never repaid — will both of you still be OK lending the money?

It’s also a good idea to think about the borrower. Is this loan really in their best interest or will it enable irresponsible money management or spending habits? Sometimes, the best thing we can do for a friend or family member is to say no.

2. Create a Loan Management Plan

If you decide to go ahead with the loan, be sure to do it right. You may be lending money to someone who knows you better than you know yourself but it’s still important to create official loan terms and a repayment plan. The more details you discuss upfront, the fewer misunderstandings you’ll have later on.

It’s also best to put the loan terms and repayment plan into writing. Don’t rely on your memories.

3. Keep the Lines of Communication Open

The best way to preserve your relationship with a friend or family member through a shared loan is to keep the lines of communication open. If the borrower is late with a payment, don’t hesitate to ask them about it. There’s no need to play bad cop; you can mention the late payment in passing during a conversation or send a short text message as a subtle reminder.

4. Suggest Other Means of Financial Assistance

Whether you choose to go ahead with the loan, or you turn your loved one down, the request tells you they’re struggling. Why not help them out through other means which can be in place of, or in addition to the loan?

Here are some other ways to help a struggling loved one:

  1. Help them find a job. You can work together to polish up their resume, practice common interview questions and search for suitable jobs.
  2. Suggest a personal loan through your friend or family member’s financial institution.
  3. Offer a small sum of money as a gift.
  4. Help your loved one find a personal finance blog, podcast or book that can help them learn better money management practices.

Friends and family can mean the world to us — and watching them struggle with their finances isn’t easy. When they come asking for a loan, you may want to jump in and say yes, but you’ll do both of you a favor by taking it slow, working out all the details and getting it all in writing. By following our tips, you can learn how and when to successfully lend money to friends and family.

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1 https://www.federalreserve.gov/releases/g19/current/
2https://www.pewtrusts.org/~/media/assets/2015/07/reach-of-debt-report_artfinal.pdf?la=en
3https://www.federalreserve.gov/boarddocs/supmanual/cch/fairdebt.pdf

The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.