Reasons Why You Should Never Lend a Family Member or a Friend Your Money
Almost everyone in this world has faced a financial constraint at some point. Our closest friends and family members become our first rescue center to ring in in our minds. But, it turns out that the situation isn’t that easy. The family member or friends often tend to be more reluctant. Now, put yourself on the other side of the situation. When you are the lender, the situation becomes even harder.
You tend to face many obstacles in mind before disbursing any money to a friend or a family member. There are so many reasons that might hinder you from lending money to friends or family. But, a good advice is that if you should offer the money as a gift. If that’s not the case, then you should never lend money to friends and relatives. Here are the reasons.
Repayment Becomes Non-Priority
The open-ended loans can bring a lot of inconveniences. Your family or friend may not realize the sense of urgency. Since there is no set timeline for the repayment, they end up becoming reluctant. Without a set timeline and a laid down strategy, the loan becomes the last priority for the borrower. The borrower tends to forget and consider the loan as just a gift. Of course, the borrower won’t face any consequences of not repaying the loan on time.
There is no fear of increasing interests and penalties for late payments. Also, they don’t fear adverse impacts on their credit score. Thus, without the fear of penalties, the family member or friend will not take the loan as a matter of urgency.
The Loans Tend to be Open-Ended
Lending some money to friends and family members can result in serious problems. This is so because the whole thing is informal in nature. It happens that there are no agreements on the terms and conditions. Also, there is no set timeline for repayment.
Furthermore, these loans don’t include interests. As a lender, you don’t know when they will pay the loan. Likewise, as a borrower, you don’t know when to repay the loan.
This situation causes a state of uncertainty to both parties. The lender may worry whether or when they will pay the loan. The borrower will live in fear as they don’t know when the lender expects the money back. Open ended loans can hinder development. This happens because you end up not getting the money at the required time.
It Interferes with Family Gatherings and Other Occasions
It feels awkward to be in the midst of family or friends who are aware of your loan status. Most of the gatherings are places full of happiness. They should have an interactive atmosphere. This might be quite difficult with a person whom you have loaned some money or vice versa.
There won’t be a free interactive environment at all. Some gatherings have a tradition of financial contributions. Thus it becomes hard to follow that kind of progress between the two of you.
It Is Not Easy to Ask for the Money Back
Friends or family members usually have intimate relationships. Thus, it becomes hard to find enough courage to demand your money back. In most cases, there is the fear that this might be the long-time relationship. This puts the lender in an uncertain situation.
More than likely, you care about the borrower, and you don’t want them to feel awkward. To avoid this, the lender may shut all the communications with the borrower. This is to prevent any discussion about the loan. What next? The borrower feels hurt and overwhelmed. So, the relationships changes and will never be the same again.
You Become Vulnerable to Shedding out More
You may be used to each other to an uncontrollable extent. Once you have dished out the first part, the borrower can return and ask for more. Also, other friends or family members might view you as sympathetic. They will approach you and demand the same favor. Before you know it you end up in a situation of constant lending. This can be detrimental to your financial status and can result in serious crisis.
Empower and Provide Opportunities
The best thing you can ever do to help a friend or family member is to empower them. Giving or loaning them money isn’t the solution to their financial crisis. But, helping them solve their financial issues is the most treasured thing to do. For instance, helping your brother pay his credit card bills isn’t right. But teaching him on how to make a good budget is the best thing to do. Or, you can help him generate income from other sources.
The key here is to offer a lasting solution to their financial problems. Giving out money will make them relaxed, and they will never learn on how to make money. In this way, you help them at the same time you avoid lending out your money. It results in mutual benefit.
You Risk Losing Your Funds and the Relationship
The situation changes when you lend money to a friend or a family member. They stop from being what they were before. This creates an awkward scenario, and your relationship declines. To be honest, you become a lender and a borrower. They become your servant, and you will never enjoy the company as before. Sometimes the borrower can do anything to please you.
This kind of tension may weaken the bondage and cause guilt, anger or remorse. When things get there, you are sure of not getting your money back. Also, the relationship reciprocates.
You Risk Going to Debt Yourself
Just because they are your friends or family members doesn’t guarantee them a loan. But, due the love and care, they might end up convincing. At times, you hardly think of the existing financial concerns in your personal life. Also, you may find yourself giving out some money just because you believe that it will be repaid in full. But, they may end up repaying the loan in parts. These funds won’t help you after all. You may end up borrowing from other sources to implement your financial plans. This can be devastating.
It Can Lead to a Family Conflict
Lending money to a family friend can lead to the worst case scenario. When the borrower isn’t able to repay, this can result in divisions in the family. This happens when it becomes hard to bear. When the borrower doesn’t show any signs of compliance, you opt for interventions.
These responses from family members are the root course of misfortunes. The family becomes two-sided causing a serious rift. This split becomes difficult to repair. Also, this family problem could arise if the borrower seems ungrateful. This is usually upon receiving the loan.
The Need to Justify Your Actions
The borrower finds themselves in an awkward situation. This is because they have to be keen on every financial move. For instance, you have borrowed some money from your mom to have your car fixed. You now become free since your vehicle is fixed. But, you have to explain yourself every time you go out partying with your friends. Your mom will want to know you are spending the money on leisure activities instead of paying her back. She may also insist that you should be saving to avert any need for an emergency loan in future.
This is a potential reason to avoid lending money to a family member or friend. It can cause unnecessary interference in your life. A good example is when you loan some money to your brother or sister to a start a business. They may end up considering you as part of the firm.
They may then expect you to be part of certain business decisions. This scenario may force you to give more money in support of the business. This can cause severe discomforts in your life. You become part of something you hadn’t planned.
In many scenarios, you don’t charge a single cent when giving out a loan to someone dear to you. You incur costs when lending money to friends or family members. It seems normal not to charge interests on family loans. But, if you could invest the money in other situations you could have received good returns. Charging interests on family loans seems awkward, but it can be a wise decision.
You Are Their Priority
Sometimes family members or friend takes the advantage of your financial well-being. So, they only think of you whenever they find themselves in a financial crisis. They tend to be so blinded by the fact that you are there for them. It even happens that they don’t take savings. After all, you are there to lift them up.
There are many other alternatives to getting financial help. The best thing to do is to try to outsource from other potential lenders. Lending to a friend or a family member should be the last option.
Living Beyond Their Means
Some friends and family members are extravagant in nature. This means that they have adopted a lifestyle that is beyond their reach. They might be earning a remarkable income but still, lack proper financial plans.
Thus, lending them your money is just a waste of time and resources. They must first be able to convenience you that they have changed for the better. Also, they must train themselves to live affordable lifestyles.
Some Intolerable habits
Some friends or family members might be used to some bad habits. These include things like smoking and drinking. Of course, they may not be able to stop them overnight. But, they should show a high degree of concern. Those who aren’t willing to stop shouldn’t get any loan from you. A loan is meant to help in difficult times but not to perpetuate bad habits.
Lack of Hard Work and Sacrifices
A difficult situation calls for tough actions. Contrary to this, some family members and friends end up being much reluctant. This is the time when they should show more concern in solving the financial crisis they are facing. They should indulge themselves in income generating activities. But, if they don’t make any effort or sacrifice then you should never give them any loan.
A family member or a friend forms an important part of our lives. Love and care are crucial in maintaining healthy relationships. We should always be quick in responding to their needs. But, giving them loan won’t do them any good. In fact giving them money will destroy that relationship. The best way is to deny them the loan and show them ways of solving current and future problems.