Understanding the risks of loaning money to family and friends

Loaning money to friends and family might seem like a nice thing to do at the time, but it can be fraught with problems.

With inflation, higher interest rates, some lay-offs happening, people might be leaning in for financial favors in a way that you might not have anticipated. Saying yes is very risky. 

Here’s why: not getting repaid, getting repaid but not in a timely manner, getting only part of it returned, being responsible for a loan if they bail on it - all of these will fracture and maybe even ruin a relationship. 

Even knowing all of that, it doesn’t mean you shouldn’t do it. 

Consider this: Do you have money to loan? Sit down and take a look at your own finances before you offer to help out someone else. Do you think you could be laid off anytime soon? If the answer is yes, you can say no. It’s like gambling. If you can’t afford to lose, then you shouldn’t play. 

If you decide to do it: Put it in writing. Sign a contract that lays out the terms. Create a payment schedule. Have the loan payments put in autopay. Decide if you’re charging interest, and what you’ll do if a payment is late. 

But be comfortable saying no.