Borrowing money kills friendships
What to consider if you can't say no
How many friendships have you lost (or almost lost) because of money? If money matters are a touchy subject to begin with, then how are we expected to navigate the murky waters of borrowing from friends?
We've all been there (on either side of the spectrum) before: A buddy asks you to spot him $20, but never seems to have the cash available to pay you back, or he continues to forget when he sees you. And when, months later, he buys a fourth round of beer in front of you without handing over the $20 that has been slowly eroding away at your sanity, you pop.
Your buddy has probably forgotten that he even owed you anything and immediately hands you the cash, but the damage has been done. Your friendship now faces trust and communication issues that may or may not be overcome.
Now, $20 is a fairly easy loan amount to forgive or forget about. But what if that $20 is $200, or even $2,000 or beyond? What tension will exist in the friendship as a result of an outstanding loan?
Borrowing from friends can bring to light a number of issues that, without the loan, would be relatively innocuous:
- It highlights the financial inequalities between friends.
- It creates a sense of obligation within the friendship.
- It may not be taken as seriously (by either party) as a conventional loan.
Navigating the pitfalls
Is it possible to effect loans between friends without compromising the friendship? Here are a few questions for each party to ask to help determine if the loan proposal is a minefield or a walk in the park.
Questions for the lender:
- Is the money in question a lot of money to you?
- What else would you do with the money if you didn't lend it to your friend?
- Why is your friend coming to you for the money and not somebody else (or the bank)?
- Will you draft a formal loan agreement and charge interest?
- How will you collect loan payments?
- What will you do if your friend defaults?
- How do you think the friendship will be affected both during and after the loan is in effect?
Questions for the borrower:
- Why do you want money from this friend in particular?
- Why can't you go through more conventional debt channels for the loan?
- How exactly do you plan to repay the loan?
- What will happen to the friendship if something unexpected takes place and you can't make a loan payment?
- How will your life change as a result of this money being lent to you?
- Is it worth possibly wrecking the friendship to borrow this money?
- Do you think your friend will attach unnecessary strings to the loan?
One of the reasons more friendships are killed by loans than is necessary is because it is easier to say yes than no to a friend. Your instinct may be telling you that this friend isn't reliable with money, but because he or she is a friend and wouldn't (intentionally) rip you off, you trust that it will all wash out in the end and save yourself the grief and stress of saying no to the loan request.
However, it is ultimately easier to face the temporary discomfort of saying no to an initial loan request than it is to have some of the tough conversations that ensue after things get hairy if you proceed with the loan. Most friends will understand a "no," even if they're initially unhappy with it.
And if you are the friend in question who needs money and has few options other than friends, you could stand to save a lot of grief by simply not asking your friends for money. Even if you are disciplined with your money and making payments, the scope of the friendship will likely change as a result of a loan coming between you. In the same way that we don't like to have a friend cover the tab all the time when we go out (even if that friend is better off), invisible lines can be drawn in the sand that have a subtle yet profound effect on your relationship.
Have you lost a friendship because of money or a lending horror story? Conversely, have you had good experiences lending between friends -- and if so, what did you do to navigate the pitfalls?
Related reading at Wise Bread:
- How to use a gift calendar to track your gift spending
- 10 money lessons learned from my immigrant parents
Published Sept. 23, 2009
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