Should You Loan Money to a Friend?
Tips to successfully loan money
f you have money and friends, the situation is
bound to come up sooner or later – your buddy
wants to get a loan from you. Should you loan Reason the friend wants to get a loan: Why does
money to a friend? Shakespeare didn’t think so. In Bob want to get a loan from you? This is a key aspect
Hamlet, ol’ Will has this line: “Neither a borrower for some friend-lenders. Some people don’t want to
nor a lender be; For loan oft loses both itself and loan money unless it’s for an emergency situation,
friend.” An old Scottish proverb echoes this sen- while others don’t really care what the loan money is
timent: “Lend your money and lose your friend.” to be used for. Personally, if one of my close friends
Maybe these folks were right about the wisdom of needs to get a loan from me, I don’t care how the
not loaning money to friends, but I haven’t expe- money is to be used.
rienced any problems, personally, with making
personal loans to pals. A low-interest loan or a no-interest loan? You’ll
have to decide whether you’ll be extending a low-
I’ve given short term loans to friends many times, interest loan or a no-interest loan to your pal. If the
and I’ve never been disappointed. My pals have loan is for a small amount of money, and it’s repaid
always paid me back when they said they would. quickly, you might want to make it a no-interest loan.
Maybe I’m the exception. I’ve read lots of sad On the other hand, if the loan is for a larger amount
tales of how personal loans have destroyed close and will be repaid over an extended period of time,
friendships. Heck, you see it on court TV shows all you might want to charge interest. You could still
the time. Two lifelong best buds will be ready to kill help the friend out by making it a low-interest loan,
each other over a personal loan. So should you or with better rates than they’d get at a bank.
shouldn’t you loan money to a friend?
Make sure the terms are fully understood by both
I think much of the answer depends on your friend parties. The terms should include the amount of
or friends. First of all, don’t even consider loaning the loan, any interest involved, and when it will be
money if you don’t know the person well. You should repaid. For larger amounts of money, you’ll probably
have been in a friendly relationship long enough to want to get all the specifics of the loan in writing.
have judged the other person’s character accurately. Make sure it’s dated, signed by both parties, and
When I loan money to a friend, I’ve decided that the witnessed by a third party. Make copies and give
friend is trustworthy and honest. Through time, the borrower one. You keep the original in a safe
that pal and I have established a friendship based place.
on trust and mutual respect.
If you have a not-so-close pal who’s in dire straits
and wants to get a loan, just give her the money, if Set up a payment plan for the loan. If your pal
you can afford it. If she’s a real friend and a person wants to get a personal loan just until payday, or
of good character, she’ll repay you if and when she when they get their income tax refund, you won’t
gets on her feet, even though she doesn’t have to. need to set up monthly payments for such a short
Should You Loan Money to a Friend?
term loan. For a long term loan, set up a realistic How to borrow money
schedule for repayment – something the friend can
afford and that you can live with. For how to borrow money from a friend, follow the
above guidelines. Go to your friend and explain
What if the friend can’t repay the loan? Always why you need to borrow money. Telling her why
discuss this possibility. Stuff happens, and it happens you need to get a personal loan might be important
on a regular basis! Let’s say your pal gets $500 as a to her. Tell her exactly when and how you’ll repay
Christmas gift every year from her grandmother. her. Suggest to her that both of you sign a written
The friend is short of cash in November, so she wants contract. This will make her feel like you’re serious
to borrow $500 from you, and she promises to pay about repaying the loan. Don’t borrow any more
it back at Christmas when she gets the money from than you have to or more than you can repay. For
Grandma. What if Granny dies or loses all her mo- short term loans, you might not need a repayment
ney in the stock market before Christmas ever rolls schedule, but for long term loans, you probably will.
around? In that case, your pal won’t get her money, Most of all, don’t get a loan from a friend unless
so you won’t get yours, either. Now what? The short you have to.
term loan has likely just become a long term loan.
You can formulate a weekly or monthly repayment
plan, or you can figure out some other way for your
friend to repay you. Unless you really need the cash,
you could use the barter system. Maybe you have
some jobs around the house that need doing, like
repainting your garage or staining your deck. The
borrower could complete such jobs in lieu of re-
paying you with money.
Should you get a loan from a friend?
I’ve been on this side of the equation, also. I’ve had
to get personal loans from friends a couple of times.
I hated to ask, but there have been a few times when
I’ve had to get a loan. These were short term loans,
and none of them were very large. Since I repaid
the loans very quickly, I feel sure I can get a loan
again from the same pals should the need arise.
Except for one close friend, the loans were made
to me by friends I’ve made loans to. We’ve helped
each other out several times with short term loans.
So if you have no other choice, you might be forced
to get a loan from a pal. How should you go about
this? Read on for how to borrow money!