How to lend money to a mate without ruining your relationship 

Written by
Jenni Hill
Finances expert
28 October 2021
4 min read
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Many people have found themselves struggling financially due to the coronavirus outbreak. Figures from Turn2Us, the charity that help people who are struggling financially, have revealed that nearly  18 million people, or a third of the population, have had to use credit cards, go into their overdraft or borrow money from friends and family since 2020. 

Borrowing money from loved ones is often a popular alternative to credit cards and unsecured loans, but although this type of lending rarely comes with interest and fees, it can cost people their friendships and drive a wedge between loved ones. 

With so many people facing financial uncertainty as a result of the pandemic, you may be tempted to help a friend in need. 

Before taking your pal’s bank details over WhatsApp here are a few things to keep in mind to avoid a fall out

Make sure money requests really come from them

Always check to see if a request is genuinely coming from the person you know. A growing number of people are falling victim to a scam which sees fraudsters hack into the social media accounts of a victim before sending messages to their loved ones asking to borrow money. 

If you ever receive a message from a friend or relative asking for money speak to them either by phone or in-person to confirm that the request is genuine before reaching for your wallet. 

Before lending money to a friend, ask yourself how you’d feel if you never got the money back 

Not only can unpaid loans damage friendships, but they can also cause the person playing the role of the lender significant financial stress. 

Before lending money to a friend, ask yourself how you’d feel if you never got the money back. 

Would you struggle to pay your bills? Would it prevent you from booking your next holiday? What are you sacrificing to make this loan happen? 

You need to be honest with yourself about how this loan will affect you if it’s never repaid. 

Set out realistic expectations 

There’s no point lending a friend a large sum of money and expecting them to pay you back in full the following month. 

To increase your chances of seeing your money again be realistic about your expectations. 

It might sound formal, but don’t be afraid to put the agreement in writing. 

A good tip is to ask them to set up a standing order so that the money is repaid gradually and means that the borrower could easily incorporate it into their budget. It also means that you never have to chase them for repayment, a process that can be uncomfortable for both sides. 

Think twice about interest 

If you’re tempted to charge your friend interest, consider what this could do to the relationship and whether this could impact your chances of getting repaid at all. 

There’s a risk the borrower might feel you’re trying to profit from their financial difficulties. 

If you do want to lend them money, it needs to come from a place of genuinely wanting to help them rather than an opportunity to make a bit of cash yourself. 

Generally, lending works best when it comes from a place of genuinely wanting to help rather than trying to make a few pounds yourself. 

If you feel that you don’t want to lend money without profit, it’s best to politely say no. It's always a good idea to consider how you’d feel if you were on the other side of the fence. 

Consider a gift instead of a loan 

It’s a bit of a leap, but you might want to consider any money you give as a gift rather than a loan. It’s not an option for everyone, obviously, but it’s a good way of protecting a friendship. 

But by telling them it’s a gift rather than a loan you’re writing the money off in your head, moving on with your own life and freeing yourself from the potential resentment that could arise if they never pay it back. 

What’s more, you're also helping a friend without burdening them with the pressure to repay the money. 

Your friend can always make the offer to pay it back anyway. 

When a friend or relative asks for your help from a place of vulnerability, it’s only natural to do everything you can to help them. But if an informal loan means losing your friendship in the process, it’s simply not worth it. 

You might decide that a smaller amount as a gift is better for you than a larger amount as a loan. 

3 things to do right now...

A word of caution: if you give a friend money and later they ask to borrow more it may be wise to point them in the direction of a free debt charity such as StepChange. 

Keep shared records of any repayments so the amounts of money are never disputed. 

Plan for all eventualities and agree about what would happen in the event of job loss or further financial difficulties. 

Please share this with someone who'd benefit from it.

Don’t forget that while you may think that this article is brilliant, it is intended for information purposes only and should not be mistaken for financial advice or recommendations.

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