8 Rules to Remember When Lending Money to a Friend

When your friend is in trouble and needs money, you want to help. But actually your good intentions can put your friendship in jeopardy. The problem is that you may lose your money, and your friend with it. And if you can’t say “No” to your friend, then what should you actually do? Indeed you can lend money, but you have to remember these simple rules.

#1 Discuss other options. Money is not always what people need to get out of the problem. So instead of lending money you can ask your friend, whether you can help to deal with the problem.

#2 Lend the sum that you can afford to lose. Let’s face the truth, even your dearest friends can fool you and never give your money back. No matter how much you love and trust your friend, and how much you want to help them, never lend the sum that will undermine your financial situation. If you’re OK to lose $1,000, you can give it to your friend. But if it’s everything you’ve got, then think about taking care of yourself before lending money.

#3 Deal with cash only. Opening a credit card in your name so your friend could use it or requesting to co-sign for a loan can put you in a position, when someone’s actions affect your credit history. Shut down any of such schemes as soon as possible, and if you lend money, then deal with cash only.

#4 Find out all the details. Now you’re a bank and you have the right to know why your friend needs the money. Not a single bank will give the money blindly! So if you get no response why your friend needs money, you’d better stay away from the deal.

#5 Get it in writing. Your friend’s promise to give money back in 30 days if good for you, but make your agreement in writing. Many sites, like LawDepot.com provide you with free forms, that you can fill online and print out. If anything happens, you have an eligible record.

#6 Discuss the interest. Talking about the interest is awkward enough, but if your friend asks to lend them money for several months, you really need it. It’s not for your profit, you will just make sure that your friend is also interested in paying you back ASAP.

#7 Talk about the worst-case scenarios. One more awkward topic for conversation is discussing the worst-case scenarios. Imagine, what will you do, if your friend makes the late payment, goes broke or never pays you at all. This is a standard for the business relationship, and all your later actions won’t be a surprise for your friend.

#8 Consider the impact. Think, if you lose your money, will you still be able to save your friendship? In case you’re not sure about it, then either say “No” or think about giving the money, not lending it. If you give your friend the money and never ask for them back, your friendship won’t be under the stress of unpaid debts. You’ve just helped your friend for your friendship’s sake.