Speaker 1: A friend asks you for a personal loan. Should you give it in this video? I'll provide some best practices for lending money to a loved one without hurting the relationship. This week's question is inspired by Colette. She writes in and asks, Hey, far news. My good friend is in between jobs and she's asked if I can help her cover a few of her household bills while she gets back on her feet. She's asking me for $1,000, you know, I have [00:00:30] the money in my savings account, but I would wanna be sure to be repaid. How should I best proceed? Okay. Borrowing money between friends. I'm gonna tell you right now, this is gonna a, a little sticky potentially.
Speaker 2: I need to borrow some money.
Speaker 3: Aw, I don't know Monica, you know, um, lending friends' money is always a mistake,
Speaker 2: But Chandler let you money.
Speaker 3: And I think he would tell you it was a mistake,
Speaker 1: Especially when it's hundreds or thousands of dollars
Speaker 2: And need it for some rent and, and some other bills.
Speaker 3: [00:01:00] Oh, well, uh, how much?
Speaker 2: $2,000,
Speaker 3: $2,000.
Speaker 1: Even if you have the money to spare, it doesn't mean that this financial move assumes no risks. If your friend doesn't pay you back, how would you feel? Would you care? Or would you be resentful? Might have hurt feelings, a recent survey by our friends at bank, right? He finds that after lending a loved one money, more than a third of people never got paid back. And one in five, in fact their relationship was [00:01:30] hurt in the process. So there you go. There's a good chance that this deal and your relationship can turn sour. So if like, Colette, you find yourself with this crossroads trying to figure out whether a lend or not ought to lend. Let's walk through this and do it together to figure out the best path. And no matter how you decide, I think we can all agree that the goal here is to strike a nice balance between your finances and your friendship.
Speaker 1: All right, let's begin by first gathering some more details about your friends [00:02:00] loan request. So turn to your friend and ask him, how will this money be helpful to you? How do you plan to recover the funds? How long will you need the money? In other words, uh, when might I be, uh, getting paid back? I know that it may feel a little nosy to ask your friend these somewhat personal questions, but I would guess that a good friend would be prepared and should understand that if she's asking you for money, you may naturally have [00:02:30] some follow up questions, but if your friend becomes defensive or makes you feel awkward or insensitive for coming up with these questions, well, I'll tell you this. That's a red flag. And you know, the game, according to me is over at this point. Now I've got a quick script later on for how to gently let your friend down.
Speaker 1: But I do think that it's important to ask these questions. Not only because they provide some context for you and some assurance, but by asking these questions, you also send the [00:03:00] important message to your friend that if you're gonna lend this money, you wanna walk into this scenario with eyes wide open. You don't want any surprises, no misunderstandings. Now let's assume that Colette's friend understands this. She answers all the questions. She's happy to answer. Any other questions you have and explain is that the money will help to pay for part of her rent. It's gonna go towards groceries, some bills, and that, you know, you can probably expect re payment in about a month or two. Uh, if you're comfortable with that explanation, [00:03:30] you have the ability to lend all or some of the money. Then it's my advice that the next step involves the two of you working together to map out a simple plan with the details.
Speaker 1: And I'm gonna talk through that outline shortly, but if you're not okay with the details around the loan, for whatever reason, maybe you realize, you know what, I don't really think I'm gonna get repaid. I don't trust my friend. I like my friend. I don't trust them in this case. Maybe you realize I, I can't part with the money. I really need to keep a hold of my savings. [00:04:00] You know what no need to explain your reason to your friend. You can say no. And in that same breath, I would suggest offering a friendly alternative. And you can say something to the effect of, you know, I'd really like to help, but while I can provide the money right now, is there another way that I can help? For example, you might be able to help your friend cover some expenses, finding ways to reduce existing bills, renegotiating terms with a creditor or suggesting let's move debt over to a 0% transfer balance card.
Speaker 1: This is all very friendly, extremely helpful [00:04:30] advice. You could even start a Kickstarter on behalf of your friend in this case with Colette's friend, if she needs help with groceries, well, could Colette offer to bring over of meals during the week. Now I know that's not the same as giving cold hard cash, but the friendly thing to do here is to discuss alternatives and other ways that you can help her help herself. You might come up with some great solutions together. Now, if you do prefer to lend the cash, let's go back to those details. [00:05:00] And this is real important. Get the details in writing, explain to your friend that you'd be happy to help and to make things really simple and clear for the both of you. You recommend drafting a quick agreement, outlining the plan. Now what is in this loan agreement? So for starters, it should have the date, obviously your full names, dresses, and a few sentences describing the plan, specifically the dollar amount of the loan, the repayment schedule, and maybe even [00:05:30] any interest that you wanna charge.
Speaker 1: If this is a lot of money over a long period of time, maybe you do wanna tack on some interest. Be sure to also clarify the method for repayment, whether that's cash, check auto deposit, PayPal, Venmo, whatever works for the two of you. If you want the loan agreement to have a little more legalese and be a little bit more official, little more buttoned up. Well, there are free templates that you can download on sites like Nolo and rocket, lawyer.com. Now, of course, we would all love to be in a [00:06:00] position to help out friends and family without question, right? Some of us prefer to give unconditionally, but that's not really what we're talking about here. Giving money to a friend, no strings attached. That's not really lending, right? That is gifting. And if this is how you feel and you, you can really afford to give, well don't let me be the one to stop you.
Speaker 1: Just wrap that cash up in a nice big bow. Give it as a gift and go straight to the finish line here. However, if you do want an expected, you're paid by your friend [00:06:30] and I don't blame you, then you wanna have these details established ahead of time. It's still no guarantee that you'll get paid back. A co-signed agreement is an important step. It's an important formality that you can each reference in case there's any confusion over how and when the loan is to be repaid. It's good for both parties, but I'll ask if you're just not feeling this, you know, you're just not feeling good about lending money to a friend, for whatever reason. Remember you don't have to, to fight this. And there are no other alternatives [00:07:00] for helping out your friend you've discussed it. There's really nothing uh, left to do. That's okay too.
Speaker 1: And here's what I would say to put it to a finish. I'm really sorry about your situation. I wish that I could help by lending you the money, but I just won't be able to do this right now. If there is another way down the road where I can support you, please come to me. I wanna know. I wanna be able to help keep it short, keep it respectful. Remember that your friend probably had to work his or her way up to asking you for this loan. It [00:07:30] took some courage. So a gentle letdown is always best, but I'm not gonna lie. It may still feel awkward to decline a friend, but if you knew in your guide that this was what was best for you and your friendship, then I'm gonna tell you right now it was the right move.