Should I lend money to family or friends?

When people are in need of some extra money for emergencies or bills, typically, as a lender we advise them to visit every other option before choosing to take out a loan. Having a family member or friend come to you wanting financial help is something you should consider wisely. You want to do everything you can for them, but is lending money to them a good option for you and your personal finances? So before you lend money to family or friends you need to consider many different aspects.

You need to make sure both you and your family your friend can afford it. Although you may not choose to charge them extra (interest), you still need to ensure they will repay you.

What do you need to keep in mind?

Even if you think lending to your family or friend is a no-brainer, you should still consider the following to ensure you won’t end up with financial problems yourself. There are multiple things which you should keep in mind before lending your money. Here are some examples:

1. Do they have any other essential outgoings?
2. Can they afford to repay you?
3. Is their income stable?
4. Do they have good money management?

These are all questions which you need to ask yourself as well as your family or friend before lending to them. If they do not offer the answers you are expecting you should then work out whether or not it is the best option.

If their income is stable and they can afford to repay you but their money management is not the best, then you could help them by trying to work on that with them. Then, if they still need your help financially, you know that they have better management skills and can organise the repayments.

Should you lend to them?

This is a personal question which you need to decide when looking at your own finances. If you know that you can easily afford to lend to your family member or friend then you probably will have no issue. But, if your money is stored away in savings, then do you really want to be digging into that, potentially damaging your own finances? So, before agreeing to them, you need to sit down and evaluate whether it is something which will weigh you down, or whether it is something you can deal with.

Are there any other options?

If your family member or friend is coming to you instead of going to a lender like us, they are probably just considering other options first. So, if you cannot afford to help them, they may go to a lender as their final choice. But, if they have already been rejected from their applications, they might need your help to apply for a different type of loan.

If you are planning on helping them manage their money there are plenty of sites out there which can help you. One of the most common sites people use for financial help is the Money Advice Service.

What should you expect?

Typically, with the person being someone who you personally know, they will be more confident and perhaps expect a little bit more slack. So, that is something you have to be prepared for. We suggest you keep your expectations low. That’s why you have a better idea of what is coming instead of expecting perfect, full repayments.

Before you lend money to family or friends you should be aware of the consequences. This includes factors like late or non-existent repayments, conflicts or it could be the complete opposite. It entirely depends on the person and their financial position.