Should you lend money to friends?

Hmm… this is a tough question. My answer is definitely yes! And absolutely not! Confusing right? Well read on…

I’ve personally lent money to friends more than a handful of times and all but once did I actually get the money back. Each situation is different and requires careful evaluation. Before agreeing to lend money to friends there is a lot to consider.

Here are five questions to ask yourself:

1. What do they need the money for? Borrowing money is not to be taken lightly. You need to understand what someone who’s asking you for money needs it for. You should think about whether you would consider their situation to be a real emergency.

2. How did they get themselves into a financial crisis? Is this a continuing problem for them or were they just side-swiped one time, without having emergency back-up funds. One time emergencies do happen, but if this is a continuing problem because of poor money management, just giving the money is not actually going to solve anything.

3. How will you get the money back? It’s all for a good purpose if you get a friend out of a pickle, but what about you? You’ve worked really hard for your money so you need to make sure that you understand how you’re going to get that money back. You need to set out clear terms and a schedule for them paying you back? Depending on your relationship, you’ll have to consider if you need a contract or if a hug is sufficient It’s up to you!

4. How will your friend be able to pay you back? This may feel like common sense, but if your friend doesn’t have the money today, how will they have access to funds to return your money? If there is no clear way that they’ll get the money they owe you, you should think long and hard before you lend someone money.

5. What is your gut telling you? You may really care about this person and want to help them but you have to trust your own feelings about them. Most of the time you will just intuitively “know” whether it is a good idea or not to lend money to a friend.

Lending money to a friend can actually be really tricky. It can feel like they are pulling on your heartstrings. Of course most times, you’ll really want to help but you have to realize that lending them money isn’t necessarily going to be the answer to their financial troubles. In fact in some instances it can actually make things worse.