Lending money to family and friends is quite different from peer to peer lending. People lend and borrow money for so many reasons; nevertheless, we should avoid loaning money to friends and families.
It might sound weird to you because we think the best way to help a friend or a relative is to loan out money to them. However, do you know that this kind-hearted help could ruin your relationships.
Why peer to peer lending is different from lending money to friends and families is because the lender involved in the former gets more returns from their money. So many relationships have hit the rocks due to unpaid debts. There are even cases where the bonds between family members break as a result of money owed. Here are some reasons you shouldn’t lend money to family or friends.
It is an open-ended agreement
Most times, when money is loaned out to family or friends, an agreement is not reached. Generally, when we loan out money, there is always a due date for payment. However, in a situation where our friends or relatives are involved, we do not reach an agreement.
In this case, these money lenders don’t have an idea when the money loans will be paid while the borrower may not know when the lender needs the money. Make sure you give a due date for the repayment of your loan if you must loan out money to a friend or a family member
You might feel reluctant to ask for your money
When you loan out money to friends or family members, you might find it difficult to ask for your money. In most scenarios, money lenders do not want the borrower to feel bad about the money. The borrower might not be aware of this and might feel you do not need your money loans returned anytime soon.
No Interest Attached
Most times when money is loaned out to loved ones, no interests are charged because you feel it isn’t the right thing to do. Do you also know that the money loaned out to family and friends could generate profit for you if it was invested upon? If you must loan money to family and friends, you can charge interest at a lower rate.
Your Money Might not be Refunded
When we lend money to friends or families, there is a very high probability you might not get the money back. What you can do is to lend the amount you know you can give as a gift.
It could destroy your relationship with the person
This is one reason why you shouldn’t loan money to friends or family, especially when you are not able to get your money loans back. The lender feels so bad and taken for granted, while the borrower expects the lender to understand his/her financial conditions. This makes your relationships with your loved ones go sour, therefore ensure you put your agreement down in black and white.
Family gatherings could become awkward
Loaning money to family members could make family get-togethers seem awkward as the borrower might feel uncomfortable around the lender. This could even be worse when other family members are aware of the loan.
You might have an urgent need for the money
In life, we sometimes go through some downfalls which were never expected, for instance, lay-offs. When such happens, you might have an urgent need for your money loans because you will need to pay your bills and the likes. Avoid loaning money to friends or family members when you are not sure of your job, just tell them politely that you can’t help.
The borrower might keep asking for more
Yes, this is another reason you should not consider loaning money to family or friends. Once you loan your money, the borrower might ask for more money. If you must loan money to friends or family members, avoid doing it constantly.
Indeed, we always want to help our loved ones. We might feel loaning money to our family members or friends is a way of helping them, but that kind-hearted act might destroy your relationships if care is not taken because this is quite different from peer to peer lending. There are cases whereby friends became enemies and bonds between family members broke as a result of unpaid debts.
If you want to maintain a good and healthy relationship with your friends or family members, avoid loaning money to them. If you must lend money to family or friends, ensure it is an amount that can be given as a gift. One needs to be very careful not to destroy good relationships that have been built.
Also read: How you can lend money to family and friends