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Loaning money to friends and family is a delicate topic, and in most cases a sore subject for many people. That is because loaning money to a friend or family member is a bad decision.
Below are 9 great reasons you should never loan money to friends or family.....
1) It keeps them in debt longer – If you are loaning friends money, those friends are borrowing and accruing debt. Encourage your friends to save for their needs instead.
2) The bank already said no – Think about it. Most try to first borrow money from a bank before enduring the embarrassment of asking friends or family members. So if friends are coming to you, that means they got denied by the bank; if they got denied by the bank, chances are they aren't likely to repay. That’s what banks do when deciding if they should loan money. They assess risk!
3) It enables them – If your friends know they can come crawling to you for money whenever they need it, they are not learning anything. Acquiring new debt is generally not a good solution. It is a temporary fix to a more permanent problem. Don’t provide a Band-Aid when your friends need surgery!
4) It builds resentment – Picture this. You loan $1,500 to your sister-in-law in March. Eight months later you are sitting at Thanksgiving dinner with your family and your sister-in-law starts describing her family’s summer vacation to Hawaii. Would that bother you? Of course! You will always be judging her choice of purchases (vacations, dining out, furniture, etc.).
5) The Bible says you shouldn't – Learn from the Bible. It knows lending money is not a good idea. There are several passages in the Bible that discourage lending money to family and co-signing on loans. (see the following passage links: Deuteronomy 23:19-20, Leviticus 25:35-37, Proverbs 6:1-3, Proverbs 11:15, Proverbs 17:18)
6) Cosigning puts you at risk – If something happens to the people you cosign for, you are still liable. If they can’t pay, you are on the hook. If the people you cosign for miss a payment, it hurts your credit. Enough said.
7) Lack of money trumps good intentions – Good intentions don’t matter if your son doesn't have the money to pay you back. And he most likely doesn't have the money if he’s asking to borrower some from you!
8) You really don’t want a slave – Proverbs 22:7 says “the borrower is slave to the lender”. This is not a good dynamic to have with a friend or family member. Do you want to be your sister’s master? Some of you probably do! All kidding aside, creating that imbalance in your relationship is not healthy.
9) You will likely lose the friend & the money – The most common scenario with personal loans is that the borrower doesn't pay back the lender. Then the borrower doesn't speak to the lender because he is embarrassed, or the lender is upset. Was it worth it?
If you've loaned money to friends or family members, stop and think for a moment how you felt about those people the next time you saw them. I’m guessing it was a bit awkward and that awkwardness never goes away. Your initial good intentions turned into long-term resentment.
It is okay to GIVE the money to a friend or family member, granted you have the saved money to give it away. But LOANING the money is a recipe for disaster! So the next time you encounter this situation, just give the money with no strings attached. You will be glad you did!
My question to you: If you lend your sister $300 and she never talks to you again, was it worth the investment?