Do Friends and Family Want to Borrow Money? Here’s How to Handle It

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If your friends or relatives ask to borrow money, here are a few pieces of advice on handling the sensitive discussion.

Lend Only What You Can Afford To Lose

J.D. Roth, founder of Get Rich Slowly, writes on that when you lend money to family or friends, you might never see it again. You could adopt the attitude that the money is a gift, and if the person pays it back, it’s a gift to you. Never put your family in financial jeopardy by cleaning out your bank accounts to bail out a relative or friend.

Look For Other Sources Of Money

Personal finance guru Dave Ramsey says 57 percent of people in a money-etiquette survey indicated they’d had or seen a relationship ruined because one friend or family member didn’t pay back the other. If your relative hit you up because he knows you’re good with money, offer to help him find other sources of cash. He might have liquid assets he can cash in, or he might qualify for a short-term payday loan.

Define Your Personal Loan Terms

If someone asks to borrow money, you have a right to ask what it’s for. There’s a difference between someone borrowing to cover a one-time shortage and someone borrowing because their monthly expenses exceed their income. A one-time personal loan is not going to solve the latter’s problems. Suze Orman says to treat the loan as a business deal and clearly spell out the terms. Put it in writing, if you need to. has a free promissory note template that will help you make the loan official.

Get Your Spouse’s Consent

Gerri Detweiler writes in blog that bad blood created by money issues can last many years and run very deep. If the borrower fails to pay you back, how will that affect your relationship? Are you willing to risk the relationship to help out this friend or relative? Detweiler shares the story of a father who recorded a lien against his daughter’s car in case she failed to repay a loan. If she defaulted, he had a legal right to repossess the car. The more official you make the loan and the more clear you are on the terms, the more likely your spouse will feel better about loaning money. According to CashNetUSA, many divorces are a result of financial disagreements. Make sure you are your partner are on the same page before you lend out any mutual money.

The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.