Before You Lend Money To A Friend Read This

May 20, 2019  |  

Thoughtful young businesswoman using mobile phone

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Editor’s Note: This article was originally published on Cassius July 6, 2018.

Most people will tell you not to loan money to friends. But saying no when a pal pops the, “can I borrow…” question is never that simple. Friends are the family you chose, which means you want to kick it, get wasted and travel together. That means it isn’t just a no to your pal, it’s likely a no to you guys hitting a bar, club or even vacay spot together, which means it’s really a “no” to yourself too. It can be a lot of pressure. Money is a major part of adulting. How you handle your funds and engage with others around money can become super stressful if you don’t set ground rules. Here’s some things you should consider before lending money to anyone.

WILL YOU MISS IT?

Never lend money that you know you’ll need for something important, whether it’s six days or six months in the future. People will always promise to get the cash back you when they’re in need, but things inevitably come up that will trump your repayment. Avoid drama and stress by only loaning out money you know you don’t need for something important in the foreseeable future.

WHY THE PERSON NEEDS MONEY

This is absolutely your business. You have the right to make a fully informed decision when you’re lending money, especially since some things may impact the person’s ability to pay you back. For example, if your friend wants the money to hit up a club or go on a vacation, that’s not as urgent as food or rent. You can make your choice accordingly.

PUT IT IN WRITING

It’s crazy, we know, but if you’re loaning more than the price of your biggest monthly bill (besides rent/mortgage) you should create a contract. Things flip from “it’s only a few hundred” to “I don’t know when I can get it back to you” real quick. Get your agreement in writing to avoid confusion around expectations. Make sure to include how you want to get the money back (increment payments or lump sum). If your friend is uncomfortable with a contract it’s a good sign he or she won’t be honorable with repayment.

THE TIMELINE FOR REPAYMENT

Speaking of getting your cash back, it’s important to set a deadline. Come to an agreed upon date for the funds to be returned and make sure that it’s a fair and reasonable amount of time.

HOW WILL THIS IMPACT THE FRIENDSHIP?

Will you feel some kind of way if the person is bar hopping but hasn’t paid you back yet? What about if he or she totally flakes—does that kill the friendship? Be honest with yourself about what kind of friend you have (some folks are just known for not repaying cash) and what kind of lender you’ll be (will you want to talk using your hands). If money will complicate the friendship leave it out of the equation.

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