Unless you’re born wealthy and live life with funds to spare 27/7, 365 days a week, you’ve likely experienced a moment when you desperately, frustratingly, and anxiously wished you had more money. And it’s because you know what it’s like to be in a financially perilous state, that your heart goes out to your friends and family when they’re in a similar situation.
Okay—maybe that’s my own personal experience. But here’s the thing: Lending money to someone is inherently a tricky minefield of a situation. If you’ve ever been on the receiving end of someone lending you money, the first thing you might think is that good people lend funds to other good people. And that’s that.
“Hurt feelings can arise from hearing a ‘no.’”
Once you’re on the other side, though, and are financially stable or well-off—and others know it—you will face a different scenario. Those dearest and closest to you will ask you for extra funds.
You will then have to determine whether or not you’re willing to give a no-interest loan to your friends, family, or partner. Lending money to someone when they’re in a tight spot is a good deed. It’s also a perilous deed. Hurt feelings can arise from hearing a “no.” Resentment at failed payments can creep up. Otherwise good relationships can turn sour.
That’s why we made a checklist that will help you determine whether lending money is a smart idea.
Here’s what you should keep in mind before you do it:
What are the funds for?
Ask yourself how your funds could help this person. Did they recently lose their job and have an unexpected payment come up? Did they find the perfect apartment and need help securing the lease? Are they having trouble covering basic expenses? Or, do they want extra cash to buy a new cell phone? Note the difference in how you feel about these scenarios.
How much will you lend? Can you honestly do without the money?
If you’re okay with lending money to your friend, family member or partner, you need to think carefully about how muchyou’re loaning. Is it $100 to help bridge the gap for their flight back home? Or is it a few thousand dollars because of an unexpected medical expense?
Once you’ve OK’ed lending funds, dive into how much they need and see if you can honestly do without the funds. Perhaps you can’t afford to loan them $500, but you’re okay loaning them $150. If so, make a counter offer and suggest that you help them find additional resources elsewhere.
Do you expect repayment? If so, when?
Be honest with yourself—and the loan recipient—about whether or not you expect repayment. This is especially true if it’s a large loan amount. Get the details down in writing and create a timeline for repayment. Then, go over how your friend or family member expects to recoup the funds during each month for that timeline. Be as specific as possible.
“I’ll pay you when I get my tax return,” or “my next paycheck,” can leave a lot up to chance and lessen the probability you’ll be repaid. Finally, think about whether or not you’ll want to charge interest or adjust the loan amount for inflation costs.
Is there another way for you to show support?
If possible, ask to make the payment yourself directly. Wiring funds directly into their account might be tempting, but instead, ask if you can make the payment on their credit card, or pay a particular utility bill without positioning them as the “middle man.”
In this way, you’re helping cover essential living expenses and guaranteeing the money isn’t potentially misused. If you get any pushback, it’s probably a sign you shouldn’t lend the funds.
Are you okay with the possibility of never being repaid?
Before lending money to anyone, it’s important to consider the worst case scenario. You might never see those funds again. If so, would you be resentful of your friend? Would you feel betrayed? Taken advantage of? Or, are you just really happy to be able to help?
Remember that anytime money is involved, hurt feelings can build a lot of tension under the surface. Don’t let it simmer and ruin an otherwise good relationship. There’s always, after all, the chance to decline lending money.
Getting over hurt feelings from a simple, “I can’t, sorry,” is a lot easier than getting over a frustrated, “I can’t believe you would do something like that.”