When the fear of banks and high interest rates becomes too much, borrowing money from a friend or family member seems like a financial safe haven. When it’s all between friends, what can go wrong? Plenty of things. As someone who has borrowed and lent money to family and friends, I can tell you it has its own type of stress that a faceless bank can’t match. Regardless of what side of the transaction you’re on, if rules and deadlines are not respected, lending money between peers can lead to broken friendships. In order to avoid that horribly awkward outcome, follow these tips when you’re lending or borrowing money from your loved ones.
Tips for Borrowing Money from Friends
Respect the Deadline
This is the most important rule to follow when borrowing money from peers. Do not let the loan you’re taking out have an open-ended payment plan. Spend as much time as you need to discuss the details of this loan with your friend so it’s an achievable goal that you both agree on. Are you paying the lump sum back in X amount of days? Will you make small payments over the year? What happens if you can’t pay your friend back in time? All of these questions should be answered before money exchanges hands.
Don’t Ask for More Than You Need
If your friend is willing to loan you money, the worst thing you can do is get greedy with it. Asking for more than you need makes paying the loan back even harder, and you run the risk of not paying it back in time. When you take a loan from friends or family, only take out the minimum amount you need. It shows restraint and will help you in the long run.
Borrow From Understanding People
If you’re going to be late on payments, find out you need more money or need to change the payment details on your loan, will your borrower be cool with that? Unforeseen circumstances can throw a wrench in your financial plans at any time, and while you may not have the luxury of being choosey with who you’re borrowing from, you should consider how your borrower will react to any changes in your loan plans. Try to pick someone who will work with changes in your loan if it’s possible.
Tips for Lending Money to Friends
Lend to People Who Will Pay You Back
Sounds pretty straightforward, but as a lender it’s easy to let your emotions get ahead of your brain. Even if it’s a good friend or close family member, you may be in denial about their financial capabilities because of how bad they need the money. Before you lend out any money, consider the probability of it being paid back on time, and how it could potentially strain your relationship with the borrower.
Don’t Lend Out More Than You Can Afford
This goes back to not lending money with your emotions. It doesn’t matter how dire the situation is for your friend or family member – everyone has their financial limits. It’s very easy to save the day when you’re not thinking of your own bank account, so be realistic about your lending limits. If you can only help out with a chunk of change before putting yourself in a bad financial spot, you and the borrower have to accept that.
Be Firm About Getting Your Money Back
There’s no need to turn into a loan shark or get too aggressive, but it’s on you to make sure you’re getting your money back. The easiest way to do this is to keep open communication with the person you’re lending to. Try not to be overbearing, but there’s nothing wrong with keeping tabs on your loan. Encourage your friend or family member to keep you updated and to come to you first if there’s any problems when paying the loan back. The only way you’re going to avoid an awkward situation is by squashing the problems as they arise through open communication.
If you’re taking anything from these pointers, remember to think with your head and not your heart, and make sure both parties are on the same page with that. The best way to keep a friendship on track when lending money is to treat it as professionally as possible. Don’t get lazy with any aspect of it, because if you do, it could potentially lead to an unhappy ending.
Do you have any pointers on borrowing or lending money to friends? Please let us know about it in the comment section below!