8 Reasons Why Lending Money To Friends & Family Is A Tremendous Mistake

Date May 10, 2018 16:20

We all want the best for our relatives and close friends. However, finances rule most of our daily concerns, and we tend to either express our care or to seek some support in this sphere. But this assistance should only be limited to tips or tricks, as lending or asking for money (in any amount) from family or friends often results in various problematic situations.

Consider the following 8 reasons not to borrow from or lend money to your close people:

1. Timeless loans

Due to the informality of these, there may be no strict agreement on the payday or on the periodicity of the payments. The lender doesn’t know when he will have his money back, and the borrower doesn’t know if the lender needs money urgently. In addition, this deal doesn’t include interest, and sometimes, payback becomes the last priority for the borrower.

2. It is difficult to ask for money back

As the loan is lent between close people, the lender usually cares about the borrower and doesn’t want him to feel awkward. In many cases, this leads to the communication breakdown between people who were normally very close. But now, they are avoiding each other in order not to push the issue. It can also make family gatherings and reunions very awkward.

3. The borrower becomes a servant to the lender

The Book of Proverbs in the Bible claims that the borrower becomes a servant to the lender, and many times it is true. The person who received the money may feel compelled to please the other and avoid any disagreement or discussion.

4. He who asks once may ask again

That's right, if a relative or friend has borrowed the money, it is likely that he would ask again for more.

5. You may be impaired not helping with the loan

There are many legitimate reasons to borrow money. And there are other cases. For example, if your loved ones can’t handle money properly, or they do not control their credit card expenses, or if they simply don’t work enough. It is important to clarify that borrowing money from you is not going to solve their problems, it will not teach them anything.

6. It is careless to lend money without interest

Charging interest on a family loan is considered to be a bad manner. That’s why people don’t do it normally. But lending money without interest costs money, since any type of "investment" or even a bank deposit, usually earns a bit. Which is still more than no interest on a family loan.

7. You might really need the money that you lent

And what if an emergency happens to you, or if you unexpectedly lose your job or clients? If a loan drains your emergency fund, you must clearly and firmly say no.

8. You could lose both money and relationship

If the borrower does not fulfill his part of the deal, the relationship will never be the same.

The golden rule of making everything clear from the start helps to avoid many problems. The issues of money and family are delicate and should be treated with great attention.

Family Money