How to successfully lend money to family and friends

Sure. You’d do anything for your BFF- but does that include loaning them money? While only you can decide before you extend a loan to friends or family members, there are a few things that you need to consider before you write the cheque.


Start with respect

Asking for help, of any kind, isn’t easy. When you have to ask for money, it can be uncomfortable and even embarrassing.

Respect your friend or family members courage for asking- and use that as a starting point.

What are your expectations?

You’ve got to play out scenarios. What would happen if the money wasn’t repaid? Would that strain, damage or end the relationship? You’ve got to consider the worst case and determine if you can live with that.

Clear terms and conditions

Your bank wouldn’t give you a loan without paperwork, and the same can be said for a loan among family and friends.

Lay out a document that clearly states whether or not you are charging interest, what the payment schedule is and when you expect the payment to be finished.

Also discuss what might happen if the loan wasn’t repaid.

Don’t take on more debt yourself

It would be bad if your friend or family member didn’t pay you back if you loaned them cash. It would be worse if you took out debt on their behalf and found yourself stuck with a whole new debt to add to your pile, accumulating interest.

Only lend cash, not credit.

Know when to say no

Does the family member or friend in question have a history of borrowing money and not repaying it?  Are you enabling behaviour rather than actually helping the person in question? Does this person already owe a lot of money? Does it not really make sense for your own financial health at the moment to extend a loan?

There are a number of quality reasons to say no. If you have reservations, you are best to be honest from the outset.