When giving a loan to a friend or family member, we often lose both money and relationships. Loans between family members or friends could also lead to problems; so here are 10 reasons why we shouldn’t.

1. Open-ended Loans

The loan we give to family and friends is an open-ended loan. Each of us doesn’t have an agreement for a time when they need to pay back the loan. When we agree to lend the money, we don’t know when we will get our money back, and our friend doesn’t know when they will have money to pay it back and this could lead to miscommunications.

2. Paying us back is not important

Since we don’t have a timeline for the borrower to pay us back, our friend thinks paying it back isn’t important as they don’t see any problems when repaying the loan like late payment fine, high interest rates, or a bad credit score. On top of that, due to no penalties given, there is no urgency to the borrower.

3. Difficult to ask for the money back

Asking the money back from a friend is troublesome. We always consider the borrower’s feelings and want to avoid the awkwardness. And due to this, we tend to distance ourselves with them. Our friends might not get the hint and this can cause emotional distress for both sides.

4. Gatherings can become awkward

We don’t feel comfortable when we are around people who borrow our money or people who lend us money. When going out together, no one wants to talk about loans, budgets, or even things that need money because then people may wonder why someone hasn’t repaid the loan.

5. The borrower becomes a slave to the lender

When they borrow money from us, they never feel comfortable. They are borrowing because of an emergency. When our borrowers can’t repay us, they feel that they have to please us and do whatever we ask.

6. The borrower may ask for more

When we lend money to a friend, they may come back to us whenever they need more money. Also, other friends might also look for us for the same reason. So we will be that friend who is labelled as a money-lender.

7. We are not helping but making them dependent instead

When we give money to a friend, we give them an easy way out to solve their financial problems. This is only a temporary solution. It doesn’t help to solve long-term problems. In this case, we can refuse to give them a loan, and instead offer advice to help them like helping them create a budget or finding another source of income.

8. These types of loans do not earn interest

Lending to a friend is definitely a loss because there is no interest profit. Sure, we can ask them to pay interest, but it’s going to be very awkward. If we want interest though, we can offer a lower interest rate than the bank.

9. We also need money

We want our money back, but we may also need our money fast. What if we lose our job and we have no income? What else do we have if we spend all our emergency funds? What if we need money to feed our children or pay off a housing loan?

10. We lose both money and friend

If we lend money to a friend, remember that we may not get our money back. This can change the relationship between us. It can lead to tension between us and our friend, and it can also lead to guilt and anger.

Have you lent money to your friends? Avoid these situations by understanding this article.