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Many individuals have been stuck in this situation: your friend complains that they have no money, and then they either directly or indirectly ask you if you can lend them any money to help them out. Or maybe your friend or family member is just constantly complaining about their lack of money. So, what do you do? How do you know when or if you should lend money to someone?

Usually when you’re on the outside of the situation and someone is telling you this, your instant gut reaction is “NO! Don’t lend anyone money!”

However, when you’re on the spot and someone is asking you, then it’s much, much harder to decide. It is especially hard to say no when you know that the person truly needs the money and that you can actually help by lending them what you can.

Helping people out with their money situations isn’t always a horrible idea. Recently, someone drained my sister’s bank account.  Her bank said they would put all the money back since it was identity theft. However, it would take a couple of weeks. I lent my sister money for gas and everything else. I had faith that she would pay me back, so I was not worried.

Also recently, my friend bought a house at an auction. He wanted the house before it went to auction, and submitted a bid, but the bank said it was going to auction soon so they rejected it. He was able to secure that house at around $30,000 less than the bid he put in. But the catch was that he needed cash for this. His family all gathered money for him and he bought the house with cash. He now has a contract with them through the bank to pay them all back with a 4% interest rate.

In this case, his family is extremely trusting him with their money, but they have were smart with obtaining a lot of paperwork and also going through the bank as well to make sure that nothing would fall through.

However, there are times when you should say no also. If your gut instinct is that this is a horrible idea, then don’t do it! You don’t want to risk a relationship that you have over money.

Things to Do Before Lending Money

There are many things that you need to think about when you lend money:

1. Think. Think about all of the possible positives and negatives that could potentially happen from this lending situation. Also, give yourself time to think it over. There is no need to rush to the ATM as soon as your family or family member asks you for help.

You need to really think over and make sure that this is a good idea.

2. If you don’t get the money back, then what will happen? Are you willing to lose the relationship over money, or will you forgive and forget? This is tough because the person might continue to ask you to lend more money.

Also, there is the potential that it could create a rift in many relationships that you have. People might choose sides. Is this worth it?

3. Don’t lend what you can’t afford. You would think this would be an easy concept, but many lend much more than they can afford. There is the probability that the person won’t pay you back.

Would you be alright if they didn’t pay you back? Or are you financially dependent on getting the money back in a certain amount of time?

4. Discuss the terms of the arrangement and get it in writing. Yes, getting the arrangement and terms in writing might seem too formal and the person will think that you don’t trust them, but this is a smart idea. This will help everyone understand what is happening, and if anyone forgets what was agreed upon in the future, then you are able to look back on your agreement and terms.

5. Talk about it. Understand what the money is for. If you don’t agree with it right in the beginning, then you will want to say no now instead of bugging them about their money choices later when they are trying to pay you back. Talk about payment terms, interest rates, schedules, etc.

Have you ever lent money to a friend or family member? How did it go?