Keep These Things In Mind When You Loan Money

Image by Gerd Altmann from Pixabay

Sometimes you find yourself in a situation where a good friend asks you to lend them some money urgently. They are low on cash and need hard cash right away. They promise to return the money in a couple of months.

Well-meaning folks have helped such borrowers only to find that the ‘urgency’ did not exist at all. In short, they had to kiss their money goodbye. With that, the relationship also goes out of the window. Closer home, this has happened to my inlaws a couple of times. They loaned money to someone and there was no sign of the money being returned. The amount was small and my inlaws worried about it for a bit and gave up. They were not angry with the borrower. The funny part is that the borrower is guilty and now avoids them whenever there is a chance of a face-to-face meeting.

In other situations, the borrowing friend fully intends to return the money and keeps providing reassurances. In fact, precise statements are made such as “I’ll return the money next week”. Of course, you never ask what the start date of that next week is, and that next week never appears at all.

Since the borrowers are good friends or someone close in the family, you are worried about raising a stink. You don’t want to sour relationships. If the borrower is family, it is not just your relationship with the borrower that will go south. There will be tectonic shifts in familial relationships regardless of who is at fault.

All in all, your penchant to help the needy is fraught with diplomatic dangers. Depending on the value of the one-way transaction, you may be caught in a tiny maelstrom or be on the brink of an interfamily or inter-friend war.

Your options

When someone you know asks you for a short-term loan, the only option is to pack your bags and leave the country. You don’t want to be in this sticky situation. You don’t want to lend money and you don’t want to be the bad guy that says ‘no’.

Learning to say no

If you have a policy in life about not lending to friends, then you have to say ‘no’. It is tough. The closer the friend, the tougher it is to say the simple 2-letter word ‘no’.

The reason we hesitate so much to say no is not so much the money itself. It is because we are worried about losing our friendship with that person. If the person is a real friend who truly understands and values their relationship with you, they will understand where you are coming from when you say no. Especially if you make it clear up front that it is your policy not to lend money to friends.

If they don’t understand or if they take offense, you probably got lucky. This is a good way for you to re-examine the depth of your relationship with them. This happened to me once. A friend asked me for a fairly large amount of money and I was really uncomfortable lending that kind of money. I told her that and politely refused. I was hoping she would understand. Did she? I don’t think so. Things turned frosty for a bit and now we are not in touch at all. What does that say about the ‘friendship’ that existed between us in the first place?

A good reason to lend money against your better judgment

There is one circumstance under which you may decide to lend money. In this case, this may be more of an investment. Let us say you have this one nagging friend who you are unable to get rid of. Lend them some money if they ever ask. You may never see that money again. But the return on this investment is that you will probably never see them again as well. That’s a good deal, right?

And finally, the decision to take before lending money to a friend

This is what I do, and it has given me a lot of peace over the years. To the extent possible, I don’t get into a situation where lending money is involved. There are times when I have flatly refused either because the amount requested was huge, or because I just did not have free cash at that point in time. In such situations, I did feel a slight frigidity at the other end. But I firmly believed that the relationship was strong enough for the frigidity to thaw over time. In most cases it has.

Naturally, there have been times, unavoidable circumstances, when I knew just how much the person really needed the money, and I have not been able to refuse.

But at those times, my husband and I had this critical conversation before the money left our hands.

  • We asked ourselves whether it would be ok to never get that money back.
  • We checked whether we could afford to take that hit.
  • We asked if the relationship was worth much more than the money involved.

If the answer to all the questions was a clear yes, we went ahead and loaned the money.

Of course, the borrower was not told about our conversation. They continue to live under the impression that they have to return the money someday. They may, or may not. But the decision has freed us. We are not worrying about the money, or counting days and hours before it is returned to us. If the money ever finds its way back, it is like an unexpected bonus. If not, it was never ours, to begin with.

This single decision helps us in the following ways:

  • Our mind is at peace. It is as if that money never belonged to us in the first place.
  • Our relationship with the borrower continues as usual. Nothing changes. When we expect the money back, without our knowledge, there is a tiny wedge in the relationship with each day that the money is not returned. In our case, with no expectations of the money ever being returned, there is no scope for any sort of wedge. No bad vibes at all. As far as we are concerned, we have forgotten that we even loaned the money to that friend. Life is simple.
  • The choice we make is an indicator of the value we place on that particular relationship. We are happy to forfeit money in order to preserve the relationship. At least from our end, the relationship is truly worth it. One could argue that the borrower probably doesn’t value our relationship enough since they don’t care to return the money. I would say that is their cross to bear. We can only be clear about our stake in a relationship.
  • In a way, we feel happy that we were able to help a close friend during their hour of need. A philanthropic act of sorts. A giving without expecting. It is oddly satisfying.

The final word

Whether you decide to lend or not is your personal choice. You may decide to lend to one person under a certain circumstance, but not to another. Your decision boils down to how much you value that particular relationship, how much money you can spare, and whether you can live without that money coming back ever!

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