Lending Money to Friends, How Should You Go About it?

October will probably go down as one of the toughest months this year. Fuel prices shot up accompanied by increase in electricity bills and possible rise in food prices. Worst still, the 27th and the 28th fall on a weekend, meaning, if salaries were processed on Friday evening, cash will probably get into bank accounts on the 29th or the 30th. It’s a tough month, right?

Given the above circumstances there’s a high probability that you’ve received a phone calls from friends asking for a “small” loan to push them through the month. One question arises, is it ideal to lead our friends money, if so, how should one go about it?

It’s obvious that lending a friend some cash is a sign that you came through for them when they were in a rough patch but then again it’s a risk you are taking that might jeopardize your friendship. What if they are late in paying you back, or can’t pay back at all. What if you end up being placed in a position where you have to look for them and be forced to ask for your money as opposed to them paying you back on their own? Is it worth risking your friendship for the sake of bailing a friend out of a rough patch?

The dynamics of friendships are complex. Lending friends cash is a very sensitive issue. Denying them cash might not go down well with some. There are those who will assume that you are being selfish and aren’t willing to be there for them. But then again, there are those who you’d lend money to and risk never getting your money back. How should you go about dealing with such a situation?

You know your friends. If you are dealing with someone known as a debt defaulter don’t risk lending them money. If it’s someone you trust and the only option is lending them cash, here are three things to consider.

First, never lend out more than you can afford to lose. Even if you have plenty to lend out, never give out more than you can do without, permanently.

Secondly, lay down the facts upfront. As kiboo.com puts it, you are neither a bank nor their parents. Come up with a schedule on how you expect you friend to pay back the amount before you lend them money. It’s also important to stress on the importance of them paying on their own as opposed to you having to push them for your money, and lastly advise them to be open when they are unable to pay back as you have agreed. Laying down these facts will make them aware of what is expected of them.

Lastly, offer real help. Don’t just share your money, share your knowledge. If you have a budgeting system that works for you, introduce them to it. The amount you lend them might push them through a tough financial time but sharing how they can best manage their money might help them for the rest of their lives, chances are they will never need to borrow again.

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