Nevada County Picayune and Gurdon Times Newspaper Archive

Lending Money Can Affect Relationships

Lending money is a business transaction with financial risks. But when the borrower is a relative or friend, lending money is also a personal transaction that may affect your friendship.

At best, letting your relative borrow money is a way to help someone you love. At worst, lending money to a friend may destroy a meaningful relationship.

Before you lend money, says Judith Urich, family resource management specialist with the Cooperative Extension Service, University of Arkansas, think twice about the situation. When a person asks for a loan he or she thinks the money will solve a problem. And if the person is in need, your loan may help pay for needed temporary financial help.

But in the worst case lack of money may be a sign of poor management, bad judgment or worse. If you lend money you are allowing the person to live and spend as usual, deny the real cause for a money short fall, and put off making spending changes.

Money problems can be solved by increasing income or decreasing expenses or a combination of the two. As long as the borrower can get some money, no changes in money management practices will take place.

Your relative or friend may have money problems if:

 he or she has borrowed from you or other friends or family members before and not repaid as promised;

 the person asking for money is vague as to why he or she needs the money; or

 the person doesn't want you to tell other friends or family members he or she has asked for a loan.

Ask yourself if you can afford to lend the money. Saying no is hard to do but not saying no may be even harder.

And, do you expect to get paid back? Be clear about your expectations. You may want to ask your friend to sign a loan document. You can write one, get a sample off the Internet and revise it for your situation, or purchase forms at an office supply or bookstore. If the loan is large you might want to consult an attorney.

What about interest? Will you want to charge the person for using your money? During the time that they use it you are losing the benefits you could be earning. By charging interest, even at a lower rate than your friend would pay at a bank, you will be letting your money work for you.

The bottom line is, lending money is your choice. Money problems can break up friendships and cause hard feelings among relatives that can last for years. Just be certain you think through your situation and voice your expectations to minimize misunderstandings.

For printed materials or confidential money management counseling call the Clark County Extension office at 246-2281.