Lending Money to Friends and Family – When to Say No

I believe in helping friends and family. What’s the point of having money if we can’t support our near and dear ones? I must admit, there have been situations where I have regretted lending money. Once, someone delayed the payment to unbelieving long time and started avoiding us. The other time, we saw this person splurging money on luxuries without even bothering to return our money. One should never lend their hard earned money to undeserving people, no matter how close the relation is. There comes a point when saying NO is the best call. After a few unsavory experiences, I have learned to say no on these occasions –

When Someone Wants Money for a Luxury Purchase

This one is a definite no-no. Lending money to support education, medical emergency or to make the deficit for a big investment, like a house, is understandable. But lending money to buy a car is not. This is among the few situations where I refuse to lend money. There are certain purchases that can certainly wait. Making for the shortfall for a car’s down payment doesn’t call for a loan from a friend. Unless the livelihood depends on it.

Definite No to Repeat Borrowers

One has to draw a line. There are people who feel it’s easy to get money from friends or relatives – no hassle and no interest payment. It’s an open-ended loan. They don’t shy away from asking again and again. It becomes a habit. Rather than putting a tab on their finances, they find it easy to ask for a loan from friends and relatives. I prefer saying no to such requests. After all, we are foregoing interest on our money and we have to be wise while lending it.

When You Don’t Trust the Person

The first time an acquaintance asked for money, we were in a fix. We went to lengths to make room for him in spite of our tight budget. I and my husband sat for nearly two hours to check all the possibilities. We wanted to help him out, but his request sounded very fishy. He wanted any amount of money we could spare. He was a well settled corporate employee from a good family. We deliberated and it took a lot of courage to say no, but we did. We don’t want to give our money someone whom we can’t trust. I would rather donate to a charity than to lend it to someone whose intentions seem dubious.

Lend Money Only If You Have Surplus Funds

Don’t feel the pressure of lending money and let your goodness get over your financial wisdom. Give money only when you have it. And, you don’t see any financial obligation in the near future. There may be a chance that your friend or relative would not be in a position to return the money as promised. It would create a rift later. As my dad says, ‘The golden rule of lending is to only lend surplus funds.’

Avoid Lending Money on the Guarantee of a Friend or Relative

When a friend or relative asks for money not for their personal use, but for someone else, such a situation should be avoided. It puts you in a spot where you may lose money and relationship with a loved one. In case you still make a decision to lend the money, I would suggest to get it in writing. If getting it in writing is not possible, make sure to have a payment schedule. One of the best ways to secure your money is to get post dated checks.

Lending family to friends and family is a head vs heart scenario. You heart says ‘yes’ but sometimes your head guides you otherwise. In situations where you have to say no, keep these points in mind. I always do this, for my own peace of mind –

• Say no politely
• Don’t give detailed explanations, barring to closest of friends and relatives
• Always ask when they would return the money. The payment schedule is very important while lending money interest-free.

Have you ever been in a situation where you have said no? Or regretted lending money? Please add your experience in the comments below. So we all can learn from it.

A Company Secretary by profession, Saru found her true calling in writing. She blogs at sarusinghal.com which she religiously updates every Monday for the last five years.