{"id":17333,"date":"2020-11-09T00:14:00","date_gmt":"2020-11-09T04:14:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=17333"},"modified":"2025-10-03T10:57:10","modified_gmt":"2025-10-03T14:57:10","slug":"lending-money-to-friends","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/lending-money-to-friends\/","title":{"rendered":"Lending Money to Friends? Don’t Do It!"},"content":{"rendered":"\n

Is lending money to friends a good idea? What about lending money to family?<\/p>\n\n\n\n

Lending money to friends or family is generally a bad idea. It can be detrimental to your relationship and does the other person a disservice.<\/p>\n\n\n\n

Read on for the Total Money Makeover a<\/em>dvice about lending money to friends and family.<\/p>\n\n\n\n\n\n\n\n

Editor\u2019s note: This article is part of\u00a0Shortform\u2019s guide to friendships<\/a>. If you like what you read here, there\u2019s plenty more to check out in the guide!<\/em><\/p>\n\n\n\n

Lending Money to Friends and Family<\/h2>\n\n\n\n

Many people think they\u2019re helping by lending money to friends.<\/strong> But a loan will be a barrier in your relationship because it creates a power dynamic where the borrower is the slave of the lender.<\/p>\n\n\n\n

If you\u2019re the borrower, the loan can create resentment or shame if you can\u2019t pay it back. If you\u2019re the lender, you\u2019ll be judgmental about how the borrower spends her money as long as she owes you (you wonder why she\u2019s going out to dinner or taking a vacation instead of using the money to pay you back). This applies to parents loaning adult children a down payment, or grandparents loaning a grandchild money. So lending money to family is also a bad idea.<\/p>\n\n\n\n

If you value the relationship more than the money, the best recourse is to remove the master\/slave dynamic by telling the borrower that you forgive the loan. This is better than lending money to friends. But if you do this, make two stipulations: that the borrower pay it forward by helping someone else someday, and that she never loan money to friends or relatives.<\/p>\n\n\n\n

In the future, give money to friends or family if you want to, but remember that a loan will bring more harm than help. Lending money to friends and loaning money to family is more harmful in the long-run.<\/p>\n\n\n\n

Cosigning a Loan<\/strong><\/h4>\n\n\n\n

Like lending money to friends, people often have the impulse to help a family member or friend by cosigning a loan. But there are two big problems with this:<\/p>\n\n\n\n

1) If you cosign a loan, there’s a good chance you\u2019ll have to repay it.<\/strong><\/p>\n\n\n\n

2) You could end up ruining your own credit.<\/strong><\/p>\n\n\n\n

Regarding your risk of having to pay it back, consider these facts:<\/p>\n\n\n\n

    \n
  • Banks want<\/em> to make loans.<\/li>\n\n\n\n
  • They\u2019re good at predicting when someone is likely to default.<\/li>\n\n\n\n
  • Despite wanting to make loans, they\u2019ve refused your friend or relative a loan (even while you’re considering loaning money to family).<\/li>\n\n\n\n
  • They only require cosigners when there’s a strong possibility of default.<\/li>\n<\/ul>\n\n\n\n

    In other words, the bank doesn\u2019t expect your friend or relative to repay the loan\u2014you\u2019re ignoring the bank\u2019s experience-based assessment, maybe because you feel you know the person better and are convinced he\u2019ll pay. But if he needs a cosigner, he can\u2019t afford the payments.<\/p>\n\n\n\n

    Parents often cosign loans for their children, thinking that they\u2019re teaching financial responsibility\u2014instead, they\u2019re teaching irresponsibility by effectively loaning money to family. The message is that it’s OK to buy things you can\u2019t afford.<\/p>\n\n\n\n

    Besides having to pay back the loan, the cosigner often ends up with ruined credit.<\/strong> For example, when you cosign a car loan, here\u2019s what can happen:<\/p>\n\n\n\n

      \n
    • If payments are missed or late, your credit record will be hit each time without notice.<\/li>\n\n\n\n
    • If the car is repossessed, it will go on your credit record without notice.<\/li>\n\n\n\n
    • If the lender sells the car for less than the amount of the loan, you\u2019ll be on the hook for the difference.<\/li>\n<\/ul>\n\n\n\n

      Even if you learn that payments aren\u2019t being made, you can\u2019t force the defaulter to sell the car\u2014it\u2019s not yours, although you have to pay for it.<\/p>\n\n\n\n

      If you really want to help someone, don\u2019t cosign a loan\u2014it\u2019s too risky. Just give them money.<\/strong> It’s like lending money to family and better to just give them the money than create a toxic relationship.<\/p>\n","protected":false},"excerpt":{"rendered":"

      Is lending money to friends a good idea? What about lending money to family? Lending money to friends or family is generally a bad idea. It can be detrimental to your relationship and does the other person a disservice. Read on for the Total Money Makeover advice about lending money to friends and family.<\/p>\n","protected":false},"author":6,"featured_media":8067,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[20,31,12],"tags":[147],"class_list":["post-17333","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ethics","category-money","category-relationships","tag-the-total-money-makeover","","tg-column-two"],"yoast_head":"\nLending Money to Friends? Don't Do It! - Shortform Books<\/title>\n<meta name=\"description\" content=\"Should you be lending money to friends? Probably not. 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