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Should You Loan Money to Friends or Family?

August 24, 2009

Photo by: Twotadpoles

The Dreaded Phone Call

It’s late on a Friday night and you’re sitting on the couch enjoying a movie with your loved one when your cell phone rings.  You hit pause, scramble to get to the phone and pick it up without even checking the caller ID.

“Hey Joe, it’s your cousin Larry!”

The dreaded words you didn’t want to hear.  It’s not that you don’t like your cousin, but he seems to always run into financial trouble and you were just enjoying a nice evening with your wife. 

“Joe, listen, I hate to bother you but…”

Here it comes.  You could almost repeat the words along with him.  This seems like a quarterly event with ol’ cousin Larry. 

“…you think I could borrow a couple hundred bucks from you?”

And there it is.  It only took 5 seconds to get to the money this time with Larry.  And he seems to be raising the stakes.  You told yourself last time that you would never loan money to him again unless he starts paying you back. 

“Larry, I don’t know man, I’d love to help you out but…”

Before you could finish your sentence he jumps in.

“Joe, I really appreciate you.  You’re the only one I feel comfortable enough to even ask.”

Is that really a compliment you think to yourself?

“Joe, I hate to do this to you again and I know I haven’t paid you back from the last time, but the brakes went out on my car and I don’t think I have any room on my credit card to get it fixed.”

“Larry, you need to start paying us back from the other times I’ve given money to you.”

“Joe, I know, but if I don’t get these brakes fixed, I won’t be able to work, which means I’ll never be able to pay you back.”

“Fine Larry, how much exactly do you need…”

Perpetual Help vs. One Time Help

So what would you do if you were Joe?  Would you loan money again to cousin Larry knowing that you’ll probably never see that money? 

Now what if we changed the scenario a bit.  What if it was Larry’s first time calling Joe for help and he never seemed to have a history of financial difficulty in the past?  Would that change things?

Should you help a family member or a close friend who always seems to be in financial trouble or is it better to let them suffer through a hardship to “teach them a lesson”?

Should you financially help your friends or family at all?

My aim in this post is not to provide all the answers, but rather to get you thinking and hear from you.

Why You Should Help

If you are a Christian, we are called to be generous people.  We’re called to love our neighbors as ourselves and to help the weak, the poor and the disadvantaged.  We’re called to be a loving and gracious people. 

So we should help others because God has helped us.  After all, God gives graciously to us even when we don’t deserve it.  Why should we hold back from helping others.

We should also help friends and family because if the roles were reversed we would want our friends or family to help us out too.  It’s the old Golden Rule principle – Do unto others as you’d have them do unto you.

Again, if you are a Christian, giving or lending money can be a good way to be a testimony of your faith in Jesus.  Perhaps it can open a door to talk with your friends or family about why you are willing to help them.

Lastly, the money really isn’t yours anyway.  Everything we have belongs to God.  When we have an open hand, loose grip policy on our money it frees us up to view our money as a tool to be used to help.

Why You Shouldn’t Help

Any time money is involved with friends or family it is typically a messy situation.  Have you ever noticed that?  Money has a power over relationships that causes a lot of stress on friendships and family ties. 

When your friend or family member doesn’t pay you back right away it makes seeing them at get-togethers an awkward experience.  You don’t want to always talk about the situation or ask when they are going to pay you back, but you just want to know.

There’s a real possibility that you may never see that money again.  Then what?  Do you kick ’em out of your circle of friends or un-invite them to Thanksgiving dinner?  Again, it can be awkward.

Lastly, you may not want to give because you may not be helping, but rather enabling this person to continue in their bad money habits.  

What Should You Do?

I believe Dave Ramsey will tell you to never loan money to friends or family and there is probably some good wisdom in that. 

I think if you choose to loan or give money to friends or family you should perhaps lower your expectations or get rid of them altogether and tell yourself that if you never see the money again that it’s okay.  Again, having a loose grip on the money will prevent you from harboring a lot of bad feelings toward the person you helped.

Maybe the best answer is “it depends”.  Maybe it depends on the need and the situation and helping should be prayerfully considered on a case by case basis.  A friend who lost his job and is struggling to make ends meet might be a great opportunity to give and not be concerned about getting paid back.

Whereas, dealing with cousin Larry who constanlty maxes out his credit cards and always seems to be in a tough spot financially may not be the wisest person to help. 

What Would You Do?

Have you had experience in giving money to friends or family? 

What are some things you would caution against or things you would do differently?

Is there a right answer?

10 Comments leave one →
  1. August 24, 2009 9:19 am

    I have a policy on this – I never loan money to family or friends. If I do give money to them, it is as a gift, not expecting repayment. If they feel thankful enough to repay the gift, that’s fine. Money has a way of changing relationships though, and of creating a power dynamic that isn’t healthy in close relationships -because of that I try not to every loan money to family or friends. Luckily I have yet to be asked by family for money since most of them are in decent shape..

  2. August 24, 2009 10:41 am

    We help someone out in our family frequently due to past money problems that are plaguing them, but it isn’t in the form of cash. Gas cards, grocery gift cards, a meal or paying a bill are some of the ways we help without actually putting the cash in their hands. We have also arranged for them to make a deposit into our checking to pay their bills and help them get back on track and have helped them put together a budget. I think that too often we don’t really help them out of what got them into that situation to begin with by just handing over cash. If the situation came about because of a one time problem like a health issue or costly car repair, I would loan the money with either clear arrangements for it to be paid back so that there is no misunderstanding or just not ask for it back.

    • August 24, 2009 9:30 pm

      Nancy, that’s a good idea to use gift and gas cards. You’re right, some times giving cash can add to a deeper problem. Thanks for the ideas.

  3. Meoip permalink
    August 24, 2009 12:36 pm

    I borrowed $8,000 from my father in law so I could make it to 20% down on my first home. We set up terms for the loan including due dates, penalties, etc. He set the rate equal to the money market account which the money came from (5.25% at the time). We had 5 years to pay the loan off. As a house warming gift to his daughter and I he gave us the first year interest free (very nice of him) . I decided to pay him off early It took 15 months. This was a largely selfish decision I knew if I needed money in the future and paid him off correctly and ahead of time I would have a much larger line of credit. I know there are a few websites out there which cater to family friend loan market by making the loans official legal loans which influence credit scores, of course it costs money but it could be worth it.

    • August 24, 2009 9:35 pm

      Meoip, thanks for sharing your experience. Sounds like you guys weren’t going to be a problem for your father in law. That’s good. It’s important to make sure you pay on time when you’re on the receiving end, especially when dealing with a family loan.

  4. abijah permalink
    August 25, 2009 2:43 pm

    This has been the discussion at my house for the past week and I will explain to you why my wife and I have decided it’s not the right thing to do. As you stated this all of this belongs to the Lord but what is not mentioned is the stewardship responsibility we have in maintaining all that has been given to us. If someone you know is a bad steward over what they’ve been given and you give them what you’re responsible for managing that makes you a bad steward. Now if you’re led to give, not loan, then absolutely give expecting nothing in return because your return comes from the Lord.

    • August 25, 2009 7:24 pm

      That’s a good point about stewardship and our responsibility to handle God’s resources wisely. I like Nancy’s ideas of gift cards and gas cards etc. in the case of someone perhaps not handling cash very well.

  5. August 25, 2009 8:56 pm

    There’s no really definite answer. As you’ve stated above it depends. You have to weight things. If you think the other party needs it very much, then I think you have to. I believe in karma and if you help someone whose badly in need, it will come back to you one day. 🙂

  6. September 1, 2009 7:35 am

    you have some really good posts here. Im going to spend the next few days reading them. i love your writing style and I’m really happy to visited your blog. keep those posts coming

  7. DB9146 permalink
    September 15, 2009 3:09 pm

    About 5 months ago, I loaned an acquaintance at church $500 “just until he got his bonus” so he said. It was for a want and not a need. He offered to pay interest and I said “no way, just pay me back”. The next week, he came back for another $200, this time for groceries for his family.

    Its now been 5 months and hehas asked me to help him with other projects to help him save money (by not paying someone else) which I have. But he has never mentioned the money I loaned him. He is continuing to spend money on concert tickets, trips, parties, but hasn’t offered to pay back any portion of what he borrowed.

    I have certainly been blessed by the Lord and I know that I am only a steward of what He has given me, and yet, I still feel that I should say something to my new “brother in Christ”. Honestly, I do want the $500 back…..I gave him the $200. But I also want him to realize that being a Christian is not just about coming to church but surrendering your life to God and allowing Him to start making changes in you. And that part of this might mean changing how he spends money.

    Should I approach him with Psalm 37:21 and Hosea 10:4, realizing that I should be following Matthew 5:41-42?

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