There are lots of benefits of having a close relationship with your friends. For example, you have someone to hang out with and someone who “gets” you. You also have someone you can depend on when you need help.
Of course, your friends should also have these same benefits in their relationship with you. But what if they use that relationship to ask for something more?
When a friend gets in a jamb, you want to help them out. But should you go so far as to also loan them money when they need it?
Some people might feel differently, but there are actually several reasons you should to never loan money to friends.
1. It May Never Be Paid Back
When you have a friend who needs money desperately, you probably empathize with their situation. But you should be careful to never loan money to friends without a contract in place.
Without specifying these details you have no idea when or if the money will ever be paid back. In addition, the friend has no incentive to pay it back because there are no penalties for not paying.
An arrangement such as this can also cause both you and your friend to experience higher levels of stress. The reason for that is because your friend may feel the need to pay it as fast as possible. For you, it can lead to resentment over anything your friend buys or does.
2. An Emergency Could Come Up
One other reason to never loan money to friends is because you can’t plan for every emergency that could come up in your own life. If something happens that causes you to need the extra cash for your own financial predicament you will be out of luck.
3. It Could Land You in Debt
Similarly, if your finances are tight, you probably should not be lending money to a friend. Although it may be hard to say no, saying yes could land you in debt.
When you buy on credit, you give the appearance of having more money than you actually do. That may be what led a friend to ask you for a loan in the first place.
Nevertheless, don’t let pride prevent you from politely saying no. Otherwise, you could end up in the same situation as your friend.
4. Retirement Might Be Delayed
You could be putting your own retirement in jeopardy when you loan money to a friend. This is just one more reason you should never loan money to friends.
For example, you may have to divert some of the income you would normally invest into paying for other things. Because of the way compounding interest works, you could cost yourself thousands more than what you loaned your friend.
5. You Aren’t Helping Them Solve Their Money Problems
Another reason to never loan money to friends is because you may be enabling them to continue with their bad spending habits. Throwing money at a problem is only a temporary fix. You could do them a bigger favor by working with them to solve their money problems.
Keeping a good relationship with your friends is important to both of you. It’s far better to politely explain why you are unable to loan them money than to risk ruining it.
Have you ever had a friend ask you for a loan? If you did, how did you respond?