Reasons To Avoid Lending Money To Friends And Family
Guest Post By Isabella Rossellini
You are a good person at heart and cannot see someone suffering financially especially if he or she is your friend or a family member. You may want to lend money to him or her to help to overcome the dire situation. Good gesture as it is however the money lending basics say: never lend money to friends and family.
This may seem more like a fatherly advice to you just as Polonius, the chief counselor to King Claudius in Hamlet gave to his son Laertes. However, Shakespeare provided this timeless advice. There are in fact several good reasons why you should avoid lending money to your friends or family. But why did Polonius say so?
- This is because Polonius explained to his son that a loan given to a family member or a friend will result in a loss of both, the money as well as the relationship.
- In addition to that, loans given to friends and family members can also lead to a series of entirely unexpected problems.
Therefore, consider these good reason before you let your heart rule you decision instead of your brain and face the consequences.
Top reasons to avoid
Though there are ways to damage control if you agree to loan money to your friends and family, but it is prudent not to damage the situation in the first place. This will help you to prevent or mitigate the potential areas that may end up with a communication breakdown.
These loans offered to family and friends are openended where there is no agreement reached between the two parties involved regarding the timeline for repayments.
- It also does not include the consequences of non-payment
- The interest on the loan
- Any set of expectations.
Both the parties are therefore in a limbo. You as a lender will not know when you will get the money back and the borrower will not know when to repay it. This will lead to stress between the parties.
If you really have to lend money, make it a professional affair with proper agreement, timeline and consequences as well. There will be initial misunderstandings but it will prevent you from breakups, forever.
The priority aspect:
With these loans that are typically open ended, there is no urgency in the borrower to repay the amount. It does not feature on their list of priorities and typically found at the tail end or at last of their list of ‘probable.’ They know that there will be no repercussions to face in case it is not paid such as:
- Late payments
- Interest fees or
- Negative impact on their credit score.
This means the borrower will have no motivation or threat to prioritize the open ended loan.
The difficulty factor:
Being related, you will more often than not find it very difficult to as for your money back even if you need it at some point of time. You will care more for the borrower and will not want him of her to feel awkward. You will be more worried about the hurt feelings that may result and therefore stop all communications with the borrower.
Well, you do not have to follow aggressive collection measures like banks, online money lenders such as libertylending.com and financial institutions follow, but it is good if you send gentle reminders about the loan. This will make the process of discussions much easier and far less threatening.
Lending money to friends and family is awkward for both the lender as well as the borrower.
- The lender will feel uneasy during family get-togethers. The best way is to steer any discussion regarding money away to keep the environment light hearted and easy.
- As for the borrower, they will feel that they are like servants to the lender or inferior to him or her.
This is not an assumption but is in accordance to the Proverb 22:7 of the Bible. They will feel that they cannot oppose the lender in anyway and will try to please him or her by doing anything that is suggested and even not suggested.
Ask for more:
Knowing that there is no risk in borrowing from you, the borrower will soon make it a habit to turn to you whenever there is any need for money. This will raise the amount outstanding making the possibilities of repayment even bleaker.
Add to that, seeing your ‘kind’ nature of helping people, others may soon make a queue in front of your house to ask you for a loan!
Therefore, do not make yourself a ‘go-to lender’ for your family and friends and lend constantly.
The goodness factor:
You basically are not doing any good to you friend or family member. You are not helping them in any way when you lend money to them. They will find an easy way out in you and not try even a bit to mend the situation and need for money themselves.
The best you can do is:
- Refuse the loan and
- Offer suggestions to help find a way out.
This will teach them life-lessons and make them a better and more decisive person and even help them to look for alternative procedures of income helping them to create a better future.
Waste of money:
Since these types of loans do not carry any interest usually, your money loses the power to make more money. In fact, it is actually a waste of your money. It does not help you to build wealth and neither does it help the borrower to build a better future.
The final word
It is good to be a nice person but make it a point that the person you want to be nice to also thinks in the same way as you do. Also make sure that you are not enabling them in the process. Instead, try to ‘help’ them in the truest and most literal sense.
Therefore, always have an open and honest discussionof the potential problems when you want to loan out money to friends and family members, if you really have to that is.
Isabella Rossellini is a marketing and communication expert. She also serves as content developer with many years of experience. She has previously covered an extensive range of topics in her posts, including business and start-ups. She basically belongs to New York and writing for Liberty Lending from few years.
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*Photos courtesy of Isabella Rossellini