4 Reasons You Should Never Loan Money To Family Or Friends

According to a recent survey conducted by Bankrate, 6 out of 10 Americans have loaned money to a family member or a friend. And of those that have loaned money, more than 35% say that they experienced a loss of money, a damaged credit score, or it harmed the relationship.

In this article I want to, not only give you 4 reasons you should never loan money to family and friends, but I also want to talk about a viable solution that you should consider.

Table of Contents

The borrower is still slave to the lender

Money changes the relationship

You could be enabling your family member or friend

People that need a loan typically don't need another loan

The Solution

Keep reading to see why the gift of giving is more valuable than a loan.

Here are the 4 reasons you should never loan money to family or friends

1. The borrower is still slave to the lender.

"Just as the rich rule over the poor, so the borrower is slave to the lender." This principle still reigns true, and the last thing I want is a servant that owes me something. I certainly don't want the feeling of having a servant who is a part of my family or friends. No thanks!

Your loan to your family or friends can sometimes end up not being a priority in their eyes, which can amplify the whole lender and borrower relationship. For me, being in the position of a lender to a family member or a friend, can be flat-out uncomfortable. It's awkward and can lead to problematic.

2. Money changes the relationship.

In terms of your relationship, It could cost you more than you bargained for. When people owe you money, it can naturally make you question what they spend their money on. I've always found that it's better to keep money out of the relationship, when it comes to family and friends.

Whether we want to admit it or not, money has a way of changing relationships. And It's really never worth it. I'm not saying you should never do business with family or friends. I'm saying steer clear of the servant to lender relationship by never loaning or borrowing money.

3. You could be enabling your family member or your friend.

When you lend money to friends or family members, you sort of give them an easy way out of their financial problems. There are usually numerous ways and multiple solutions to almost every money problem that a person finds themselves in.

Sometimes helping someone is not about loaning them money, but helping them see creative alternatives and helping them realize their options. A good idea is to take time out and sit down with them and help them figure out some alternatives to get through their financial situation. Often times, people need advice and fresh ideas MORE than they need your money!

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4. People that need a loan, typically don't need another loan.

Everybody needs help sometimes and that's ok, but there is a good chance that a loan from you may represent another debtor that they don't need.

Without sounding insensitive, let me say that there is a reason they need a loan, and it may possibly because they have burned bridges with others, you are their last resort, or they made a series of poor decisions leading to the feeling that they need to borrow money from you. It may not be wise to add something else to their plate.

The Solution

Instead of loaning money to your family or friends, give them what you can afford to give them.

Giving is better than a loan.

Give your family or friends what you can afford to give them, and let that be your gift to them, not a loan. Be sure to give and not expect anything in return. It's always better to exercise the spirit of giving when a relationship that you care about is potentially at stake.

You can't go wrong with giving. In fact, "Giving" is #5 on my list of the 8 Millionaire Habits that changed my financial life.

It may be possible to simply give them the full amount they want to borrow. This is quite ok if you have it to give and you give it in the right spirit.

There is also nothing wrong with stretching and giving them a little more, if you can. Promoting the spirit of giving, with a kind heart, can go a long way towards strengthening your relationship.

So essentially, you can use this experience to show an incredible amount of love by extending the gift of giving to your loved one. If they are receiving with the right hear, they probably won't refuse your gift, and they'll be thankful you helped.

The bottom line is this: You want to help your family and friends, but it's not always best to help in the way they feel and think they need the help. However, giving is always a good solution, and it's typically in the best interest of your relationship. They may not like it, but hopefully they'll appreciate your willingness, and heart, to give.

It's going to take courage on your part, but be strong, and give what you can afford to give. This may be money, creative advice, time, or other solutions. In the end, if you give what you can afford, with the right heart, you'll minimize the risks of changing your relationship.

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Eric is a manager of federal government contracts by day, and a mentor, coach, blogger, voice over artist, top-rated power seller on Ebay, real estate investor and landlord, city planning & zoning commissioner, and author by night. From poverty and a negative net worth at 30 years old, to a multiple six figure net worth today, Eric has had to fight through mistakes to proactively learn about money. Eric's mission today is to reach back and help other ordinary people be empowered to be extraordinary with their money.

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