6 reasons why you should never lend money to your friends or family
Did you know that more than half of people have seen an end of friendship because of the money owed?
You might think helping your broke friend is the right thing to do, but it could ruin your relationship completely. If you need to be convinced, here are six reasons why lending money to friends or family is a bad idea.
1) you are a last resort
They’re probably coming to you because they can’t get a loan from a bank. This means that traditional lenders see them as too risky to lend money – even after factoring in all the potential interest they might generate on the loan.
Most loans to friends and family have very low or no interest rates. So, by lending money to a loved one, you are taking a ton of risk for a fraction of the payment a bank would normally get.
2) You will probably never be reimbursed
Almost three-quarters of people who borrow money from friends or family never repay the loan in full.
Rather than expecting to be paid off, you should think of the loan as a gift in your mind. There’s a good chance you’ll never see that money again, so only lend as long as you’re comfortable parting with it.
3) You could allow your loved one
The majority of loans consist of parents lend money to their adult children. Sometimes the reason for the loan is good, like a one-time emergency that was completely unexpected.
But often the reason is not valid, and helicopter parents simply reward bad financial habits. If your kids think you’ll get them out of any bad financial situation they find themselves in, they will never be encouraged to develop good financial habits.
4) You might need some cash
Unexpected emergencies and job losses occur. And when they do, you’ll need the extra cash to pay your bills and stay afloat. If you have an extremely well-stocked emergency fund, you might not miss the money you loaned.
But only a quarter of Americans have over $ 10,000 in their savings account. So if you’re like most people, you’ll want to get your money back ASAP. Draining your savings to help a friend could leave you in the same situation as them in the near future.
5) Having to repeatedly request late payments will become annoying
Since most loans never go back, there will likely be a time when your friend or family member will fall behind in payments. When this happens, it’s up to you to follow up with them about their late payment. And this conversation is going to be incredibly awkward.
But it is worse. They will likely continue to fall behind on payments. And you’ll have to keep following them every time to let them know they’re late.
6) it could ruin your relationship forever
After a few late payments, you essentially became a debt collector for your loved one. And this fact will affect your relationship.
You’ll be upset that they haven’t paid you back, which shows that keeping your promises just isn’t a priority for them. And they’ll feel uncomfortable every time they see you because they know they owe you money. Vacation dinners and outings with your group of friends will now come with a ton of luggage.
If you are going to lend money to a friend or family member, do so The right way and put an agreement in writing. Otherwise, consider your loan to be lost.