Can I borrow some money?
Your friend or family member asks you to lend them money, and we’re not talking about a just few bucks for the vending machine. He promises to pay it back as soon as possible. Red flags go up everywhere in your mind, but you don’t want to say ‘”no.”
What do you do? You’ve never lent money to a friend before. What are some guidelines you must follow? Here are several:
1. Determine whether or not you should lend the money or just give it away. In our lives, the latter should be much more prevalent than the former. God has called us to be generous.
Be very, very cautious. There are reasons why you are hesitant. First, there is probably a reason why your friend is asking you for money and not a bank. He probably does not have the best financial management track record. So, you know there is a risk. Second, you know that if this loan goes awry, your relationship may go with it. You don’t want to lose a friend over money. Sometimes the best thing you can do for your relationship is say ‘”no.”
2. Understand the relational risk. According to a survey, 46% of those who lent money to family members reported a negative outcome. Thirty-seven percent lost money and 21% experienced a damaged relationship. (Kudos to the 16% who lost money but maintained the relationship).
3. Make sure you are financially able to handle a default. Do not go through with the loan if their inability to repay the lay puts you and your family into a financial tailspin.
But if you do go through with the loan…
4. Be more than fair. If you do decide to go through with the loan, make sure the terms are more than fair. I do not recommend viewing this as a business deal. Do not place an unreasonable interest rate on the loan. In this situation, your goal should not be to make as much money off your friend as possible.
5. Put the agreement in writing. Make sure both you and your friend has a copy of the loan terms. Both of you should sign each copy. Consider using a template loan agreement. Several are available online.
6. Make sure they know that your “yes” is rare. You do not want them constantly returning to you for loans. This would not be good for your relationship or their long-term pursuit of financial health.