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Saturday, 7 September 2019

The dos and don'ts of lending and borrowing money from your friends

The dos and don'ts of lending and borrowing money from your friends

Money illustrations

Let’s walk through this ethical quagmire together, shall we? (Picture: Ella Byworth for Metro.co.uk)

OK, so it’s notoriously difficult to lend money to, and borrow money from a friend. Most people vehemently advise against it, usually because they’ve been burned by people who don’t pay them back.

It’s complicated to give money to a friend because it is a decidedly unfriendly thing to have to demand repayment of that loan. Most friendships do not come with a clause about loans and debts, and it’s unpleasant to have to negotiate them.

Most of us are not accustomed to even discussing our salaries, our savings or our budgets with even our closest friends, so it is strange and frightening to broach the topic of cash at all, let alone set up debt between one mate and another. It makes an otherwise emotional connection suddenly feel transactional, which can be disconcerting for everyone involved. It’s extremely awkward to ask a friend for money and equally, it can be awkward to lend it.

But also, here’s the thing: sometimes someone you care about needs money! Sometimes it’s a necessary kindness! Sometimes, if you can afford to, you should help someone out!

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So, let’s walk through this ethical quagmire together, shall we?

Should you ever lend money to a friend?

This is ultimately a very personal decision for you and it does depend on a few factors. Do some serious thinking before you agree to it. Do you have the money to spare? Can you afford to lend the amount of money requested by your friend? How do you think you’ll behave towards someone who owes you money?

And perhaps crucially, will you forgive them if you’re not paid back?

Obviously, it’s preferable that your mate pays you back, but in the event that they don’t, will you a) be in a financially compromised position or b) find yourself unable to continue the friendship? If you can privately think of the loan as a gift and not entirely expect it to be returned, that’d be ideal, in terms of the emotional fallout we have at stake in this kind of transaction.

The dos and don'ts of lending and borrowing money from your friends

A hand holding some coins
Be clear and direct, if you have certain expectations for this money (Picture: Ella Byworth for Metro.co.uk)

If you’re able to lend someone money without desperately needing it back, and perhaps not in a timely fashion, then great (this is rare, obviously). If it’s a small amount of money, maybe you could tally it up as a good deed and think about the ways you benefit from your friendship, including the feeling of being able to help someone when they need it.

If it’s a substantial sum – one that you really need to be returned – you are going to want to be clearer about your requirements. If your mate comes to you asking for money, say ‘Yes, sure buddy, whatever you need’, but stipulate that you can only really part with that cash for a finite period of time and would need it back.

Be clear and direct, if you have certain expectations for this money. If you simply lend someone some dosh without explaining that you need it back, you risk not only that amount of money, but also your friendship.

If you’re going to resent this person for spending your cash, or feel tempted to control or police their spending habits until they repay you, I would seriously advise against getting into this transaction in the first place. If you can’t realistically afford to part with a serious amount of cash, then don’t. Pay your friend the courtesy of being honest with them here.

Only lend them money if you feel as though you can, both financially speaking and emotionally.

Should you ever ask a friend for money?
Have you looked at other options? Ones that definitely won’t endanger a personal relationship? If you need money and you’ve ruled out a bank loan and any other sources of income, then yes, you could ask a mate for a loan.

It’s complicated though and you need to be aware that your behaviour with regards to this sum could determine whether your friendship survives.

We can be very emotional about money and outstanding debt between friends can be seriously troubling. You might think your friend could easily afford to lend you money, but have you thought about how they’ll behave towards you when you owe them money?

If you suspect they could lord it over you, be controlling or cruel, or make demands on you until you pay it back, then have a serious think about proceeding.

Be open about your financial situation, be honest about your capacity to settle your debt, and keep them up to date on any developments.

Do you trust your friend to be a kind lender? And what about you – do you secretly resent this person for having more money than you? Do you feel entitled to their money and do you think it might bring out something nasty in you, to take it?

Also consider whether you’re truly asking for a loan, or if you’re in fact asking for a gift. If you think you can realistically pay this money back, be forthcoming with a plan. Be open about your financial situation, be honest about your capacity to settle your debt, and keep them up to date on any developments. Communicating openly is essential here, and could save a friendship.

If you need to borrow money for a specific reason and you have the intention to pay it back, then say so and stick to it. Behave with a sort of professionalism here: pay it back as soon as possible, discuss whether you can do it in instalments, set up clear repayment terms. Ideally, you’d make your case for the loan and then write and sign an agreement for its repayment.

You probably want to separate your friendly chats from your money talk, too, being very clear about your intentions to settle the debt. Operate with integrity and transparency here: you owe it to your friend.

Proceed extremely cautiously here, especially if you think an unpaid debt could be the end of your friendship.



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