You should never take a good friend for granted.
Today I am dedicating this post to a personal friend of mine who has enough dexterity and serenity in her spirit to never…scam me out of money.
Sadly, money and friendship disputes are much more common than you think. Almost everyone has a dispute money story with an (ex-)friend.
Loaning money to a friend often results in the loss of money and friendship. The reason is obvious. Loans to friends – no matter how close they are to you – are open-ended. So by loaning them some money, you also run the risk of not getting paid back.
This is where the issue comes in, you are involving money and power disparity when friendship is about equality.
Does it mean that you must never loan money to a friend at all? The answer is no. Loaning money to a friend is not at always a bad idea. Here are some signs that tell you it’s OK to lend your friends money.
⭐ Related Reads:
- 3 Signs When Being Frugal Doesn’t Work & What To Do About It
- Why Rich People Penny Pinch When They Don’t Have To?
- At What Age Does Being Broke Stop Being Cute?
Do remember though…
Emotions can fly high.
You are here because you are afraid of possibly losing money that you will never likely recover, think about your own financial circumstance and theirs.
All I can say is this: it takes an enlightened friend to understand that money is not the great equalizer.
Money makes certain events less stressful but not any less sad. If my dog died tomorrow, money is not going to stop me from mourning the loss of my dog. Bill Gates is allowed to feel sad just like anyone else, duh, because money up to a certain point becomes less meaningful.
To be a good friend – even if they only have a handful of the traits we will discuss right below – it still might be worth helping them out:
1. Close Family Members
To some people, there is a difference between loaning money to a friend vs a family member. In my opinion, there is more obligation and pressure when it comes to a family friend or family member than just a regular friend.
Lending money can either break or make your friendship. If you say no, it could bring your family relationship into limbo.
Remember in certain cases if you do want to offer help, you can direct them to financial alternatives that are available. For example, you can serve as a co-signer to a bank loan in order to obtain a loan from a banking or credit facility. That way, they can get a loan and will be more pressured to pay it back.
2. Decades of Friendship
A friend who has been with you through the years most likely stand in good chance of getting a loan from you – but the final judgment call will always depend on the individual situation.
If your long-time friend confides that she is having money problems, don’t dig into your pocket immediately. Try to learn more about her situation first.
If your friend sincerely needs money for an important reason then lend her the money, so long as you can afford it and make the terms clear if this will be a loan or gift.
You should know a close, longtime friend better than anyone. If your friend is complaining about her financial woes while still having a good time in a fancy night club every night then there’s definitely something wrong there. Never lend money if your gut instinct is telling you “no.”
⭐ Related Reads:
- 4 Profound Things I Wish I Knew Before Growing Up
- Effective But Semi Illegal Ways To Pay Off Student Loans
- Top 5 Financial Mistakes I’ve Made In My Early 20s
3. Never Expressed Jealousy or Intrusiveness
It’s okay to lend a friend some money if she has never been that intrusive about money in the past. Your friend is probably just having a real money problem and needs your help. But you also need to be careful and study the situation.
Conduct an extensive evaluation of whether your friend truly deserves a loan. Ask about why they need the money, have a clear picture of their financial situation, don’t live in doubt about this situation. You need to see how genuine your friend is in their purpose for money.
For example, if they need it to make a down payment in order to purchase a car or a mortgage loan, honestly, do not bother lending them the money.
Borrowing money to take on another loan most likely will result in a larger financial disaster for them and you may not really be doing them a favor.
4. Genuine Unforeseen Emergency
It is really hard to say no to a friend who needs money for an emergency. They say it takes time to gain friends but money is something you can always earn by working.
So let your friend borrow money is probably the only way to salvage a friendship when it’s a genuine unforeseen emergency. But only lend the amount that you can easily write off immediately so you wouldn’t be bothered if it is not returned.
5. Mutually Beneficial For Your Friendship
Friendship is a give-and-take relationship. If you are open to each other about financial matters, then it’s OK to lend your friend some money because you can expect most likely that they will have your back in the end as well.
It can be beneficial for both of you, strengthing friendship bonds by holding each other over difficult and tight times. Important things like needing extra money to process a working visa or paying off the electricity balance for their apartment is a small gesture with a large impact. When you help a friend achieve something, they will most likely reciprocate the same to you in the future.
Fortunes can turn easily. So try to put yourself in your friend’s shoes. What if it was you who needed the money? If you let your friend borrow some cash, then there is a high possibility that she could return the same favor in the future.
⭐ Related Reads:
- 7 Reasons You Shouldn’t Feel Embarrassed To Attend Community College
- How I Paid Off $20,000 In Student Loans Working Part-Time
- 15 Money Things Young Adults Overlook That Matter
6. Your Friend Has Always Been Open-Minded
Sometimes no matter what, the answer is no. There is nothing wrong with saying no. It is YOUR money after all. They need to respect that.
A friend who talks about all other issues in life is someone you can trust and feel comfortable saying no to. Since you know everything that is going on in their life, it should be easier to make a judgment and tell them what the answer will be.
7. Your Friend Possesses Humanness
Lending money and paying it back is a moral matter. If you believe your friend possess humanness and conscience, you can trust that she will return the money when you need it.
A friend that possesses this great quality is someone who sticks around through thick and thin. They will not backstab nor lie nor pressure to you. Rather, they are honest in all aspects of your friendship even if it hurts you. This is the type of friend who cares genuinely enough for you to trust that she will not do anything to break your friendship.
8. You Are Doing OK Financially
Being financially OK means you have extra money to spare in case your friend doesn’t pay the loan back on time. This may also mean that you have put up several months of an emergency fund, paid off credit cards and bills, and have a comfortable financial life.
Additionally, if you have some money in the bank and not worrying about whether your friend can pay the loan, let go of some cash and help your friend out.
9. They Agree To a Repayment Timeline
Creating a timeline for the repayment of the loan avoids instances wherein you would feel awkward in asking the money back. If your friend agrees to a deadline, it means she is willing to return the money and not just run from it.
All you need to do is lay down the rules in a nice and subtle manner. For example, “Ben, I’m happy to lend this money to you but I would need it back before the 4th of July. If you can pay me $100 per month, the loan will be paid off by then.”
⭐ Recommended Reads:
- How To Make Money as a Notary Public
- 45+ Legit Ways to Make Quick Money Before Pay Day
- 105 Ridiculously Easy Crafts to Make & Sell for Money
10. The Business Involves Both of You
If you are entering into a partnership, you can lend your friend the money so you can put up the business together. However, your friend must agree that you will get the money owed from his share of the profits instead of splitting it together.
You can ask for equity in the business itself instead of asking for cash as payment. If the person knows what she is doing and has a solid business plan in place, she would most likely come into an agreement with you.
11. You Really Want To Help
If you’re just lending money because you feel desperately guilty for a friend, you’re making the wrong move. When you’re motivated by guilt, you are more likely to regret lending money when your friend doesn’t pay it back. Only cough up the cash only when you’re fully willing to lend money from the bottom of your heart. This means that you also accept the risk of late payments or not getting paid at all.
12. It Isn’t a Large Sum
If your friend borrows a few dollars just to cover for lunch – then why not? A small amount of money is not so hard to return especially if your friend has some financial resources to repay the debt. So just lend her the money and let it go. If she pays it back, great. If not, then you can consider it is a gift for friendship’s sake.
⭐ Recommended Reads:
- How I Made Over $2,400 on MTurk With This Survival Guide
- 11 Real Ways You Can Make Money With Your Car🚗
- Can Being a Friend-For-Rent Really Make Extra Money? – Rent A Friend Review
13. Your Friend Has The Means To Repay
There’s nothing to fear if your friend has a full-time job, hard worker or running a successful business. A friend who has the financial resources can repay the loan for sure is a lot more comforting. Just make it clear to your friend when you need the money back with a clear deadline.
14. The Loans In Writing
Loans that involve big money need to be put into writing. If your friend is willing to draw up an official loan document, it means she will most likely take the loan seriously and pay it back on time.
Loans that are more than $1,000 are big enough that your friend should understand the need for documentation. Having a written document is easier when you have to take them to small claims court, it will be an open and shut case.
15. They Will Pay Interest
It might sound unusual but there’s nothing wrong with charging interest to your friend but if your friend offers to pay interest then accept it. It’s a good sign that they are serious about paying it back.
⭐ Related Reads:
- The Difference Between Reverse Budgeting vs. Traditional Budgeting
- Tips for Battling High-Interest Debt That Won’t Go Away
16. Trusted & Admired Friend
It’s definitely hard to say no to someone who has become a trusted friend. If you truly trust the person, just lend them the money and be confident that you’ll get repaid. If not then you can downgrade their trusted, admired friend status. A trusted friend is someone who cherishes the friendship that they would never do anything to break it over a few chunks of cash.
17. They Are Responsible With Money
Your friend has borrowed money from other people and has paid it responsibly. Or your friend has a loan from a bank and has earned a sparkling credit score after paying it on time every time. A person who has a good credit history is more likely willing to repay the money on time.
Do be careful if the same friend asks you for a loan for the second time and you find out that she is also doing the same with other friends, you should be careful.
My Favorite Money Saving Tools:
- Personal Capital: Sign up and use their net worth calculator for FREE. They are a free financial service platform that helps you analyze your portfolio, retirement, and financial health all on one simple & secure account.
- Ibotta: I thought this app was overrated before trying it myself. The “any item” promos instantly save you money after scanning your grocery receipt. Ibotta also hosts promos and contests for your team to save more by working together. One of the guys on my Ibotta team list has earned and saved over $100,000 using Ibotta. You can get $10 if you sign up.
- ThredUp: The only online recycle clothing store I currently shop and sell with. Great mission statement, company model, customer service, prices, and selection. Sign up with our invite link and you can get $10 free in ThredUP credit.
- $5 Meal Plan: Grocery shopping gets out of hand quickly. Meal planning can take loads of time, stress, and money you shouldn’t be spending. That’s where $5 meal plan comes in. They will give you a customization meal plan, recipes, and grocery list to take the headaches out of meal planning. They have a free 14-day trial, risk-free and you can cancel anytime.
- Honey: An add-on button you can use on your browser that helps you automatically find coupon codes and apply them when you shop online. You can use the button to shop on Amazon to find the best time to buy your favorite products. The app automatically applies the code to your shopping cart.