Should you ever lend money to a friend?

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Ask anyone what their biggest money mistake is and there’s a very good chance that lending money to a friend will be their answer.

In fact, when we spoke to people about the financial decisions that they regret the most, it quickly became clear that lending money to or borrowing from friends or family was one of the most common themes.

Emotionally fraught as talking about money can be, broaching the topic with those we care about can be complicated even before we get into issues like borrowing or lending. After all, when splitting bills at the end of a night out can end in awkwardness, asking for financial help can feel incredibly difficult and the decision to help may feel incredibly charged on an emotional level.

And no wonder. A study from PayPal revealed that nearly one-third of people who have loaned money to friends or family have lost a relationship as a result. Around half also lost the money that they loaned. Most of us don’t want to go through either experience, let alone both.

And yet many of us have done it.

We’ve borrowed cash on nights out. We’ve let someone cover our tab when we’ve not been paid yet. We’ve offered to pick up the bill when someone’s card has stopped working or been willing to help out when a friend has lost work or needed help covering rent that month.

“I’m constantly doing both, to be honest,” says Cesca, a 27-year-old consultant from Manchester. “Usually just for little things like a round of drinks or dinner out but I’ll cover for a friend if they’re feeling skint that evening saying they can pay me back when they can, and generally I hope for the same kind of thing in return. It can be weird if you have a particular friend who doesn’t pay you back quickly or reciprocate in turn but then you learn that maybe you shouldn’t be as generous with some people.”

Cesca is not alone by a long shot. According to Bankrate, around 60% of people have loaned cash to a friend or family member, with a further 17% loaning a credit card and 21% co-signing for a loan or financial contract. In the UK, figures have historically been lower at 31% (dropping to just 13% during the course of the Covid-19 pandemic). One study also suggested that Brits lend their friends an average of £272 each year and will typically lend their nearest and dearest cash four times every 12 months.

The fact is that sometimes you or someone you care about may need money. And sometimes it’s our friends who we feel able to turn to for support.

Arman, a 33-year-old comms specialist, says he borrowed money from a friend when his freelance business hit a dry patch. “I ended up asking my flatmate if he’d help cover my rent and I could tell he wasn’t really sure about it but I didn’t really have any other choice at the time as it was that or move out as my family couldn’t help me. All in, I must have borrowed about £1200 or so over a few months.”

The issue was that Arman’s debt was spiralling and there was no guarantee of when he could pay his friend back. Arman says that it was this uncertainty that strained their relationship. “Things got really bad between us because whenever I spent anything beyond basic groceries, he was annoyed I hadn’t paid him back instead. I felt constantly guilty but also angry at his attitude. I was doing my best but it wasn’t enough. I couldn’t promise when I’d have money to pay him back. The whole thing tanked our friendship and it’s definitely made me more conscious about money, especially having my own savings because I never want to be in that position again.”

Fortunately, there are ways to lend and borrow money without it being a friendship ruiner.

The trick, it seems is to have a very honest conversation with yourself as well as your friend.

Before lending, you need to consider your financial situation. You need to take a look at what you can afford and whether you’ll be ok without it until they’ve repaid you. You also need to be sure of how you’ll be affected if you do lose that money. Similarly, be honest about your friendship — ask yourself how you’d feel towards them if they couldn’t repay you and how they might feel in return.

The same goes for borrowing. If you’re asking a friend if they can lend you money, it’s important to consider whether they’re actually in a position to help. If they say no, will that cause resentment? If they say yes, will it make you feel differently towards them? These aren’t simple questions, especially if you’re in a financially difficult situation, so they’re worth spending some time over.

You can also consider their money personality compared to your own. As Laura Whatley, author of Money: A User’s Guide, commented in Refinery29: “If your friend has a completely different attitude to money than you — if they’re a wild spender, while you’re a careful saver — then think twice about whether you want to lend, too. Money is so laden with value — you may find the way your friend spends deeply disrespectful while it might not have even occurred to her that you would be upset by her choices.”

On the other hand, if you have more similar financial habits and goals, then you may find it easier to lend someone money or to borrow from certain friends. For 31-year-old Yomi, who loaned her friend Eleanor money to help with an emergency bill of £350, frankness was the only way to make it work. “She needed her roof repointed after it started leaking, but she couldn’t afford it just then, so I offered to lend her the money before the problem got worse. We had a very frank conversation about the whole thing, discussing her finances and mine, when she could pay me back and stuff. We agreed she could pay in several smaller chunks, which I was fine with. I was happy to help and I felt she was reliable. It was awkward in some ways, but she paid me back after a month and honestly, it’s just made our friendship stronger.”

Another common piece of advice is to treat a loan like it’s coming from a third party — just without the interest rates. Martin Lane, Managing Editor of Money.co.uk, wrote a guide on different ways to ensure you’re paid back. This looks at options like written agreements, keeping records of payments, using standing orders and updating the terms as and when necessary. It may seem very serious and unfriendly, but if it helps both parties feel more secure then this could be a positive choice.

Ultimately, lending money or borrowing money from those you’re closest to is a personal choice.

The internet may warn you against it and the odds aren’t always in your favour, but sometimes it’s good to help your friends out financially — as long as you can afford it.

Authors: Harriet Allner and ikigai

Harriet Allner is a writer, blogger and fintech specialist. She cares about stories that matter and is passionate about promoting conversation around money positivity and financial feminism.

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