When Should You Loan Money to Your Friends?

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I was recently asked this question by a friend of mine and my initial response was, “Never.” But, I thought I would dig a little deeper into the question and search some well-known sites on the topic. Perhaps there are times when lending to a friend is necessary.

Fortune Watch basically agreed with my initial response and advised against loaning money to a friend.

“Lend money to a friend and you lose both, money and friend.” — Shakespeare

MasterYourCard.com wasn’t quite as adamant and stated that you most likely should not loan money to a friend, but if you must, enter with caution.

The Money Café advises that you “do the right thing rather than the instinctive thing when a friend asks you for money.” In other words, do not give them a hand-out. Truly help them by teaching them to live more wisely. Payday loans might be a better option here. At least you would save the friendship.

“Before borrowing money from a friend, decide which you need more.” – Author unknown

“Eat and drink with your friends, but do not trade with them.” – Turkish proverb

eHow does not debate as to whether you should loan money to your friends, but rather provides meticulous information such as planning the payment schedule, setting interest on the loan, and deciding when the loan will be paid off.

All of this advice seems very wise, but there are obvious differences. I personally like what ‘The Money Café’ said. “Do the right thing rather than the instinctive thing when a friend asks you for money.” If my friend asked me for money, I would much more instinctively jump in and offer to help them with their personal finances and help them develop a plan to be debt free. Obviously my friend currently needs short term help if he is asking for money, but I would much rather help him for the long-term.

To sum it all up, I am sticking with my original answer of “never.” I just would not be willing to risk the friendship over money. If I was convinced that my friend truly needed the money, I would give it as a gift and never speak of it again.

It seems that everyone I talk to has a story about their friend that still owes them money. Do you have any experiences where you lent money and it ended up straining or ruining the friendship?

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Money

Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

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