Updated on 09.11.14

Thinking About Loaning Money To Family? Don’t Do It!

Trent Hamm

Most of us have faced this dicey financial situation at some point. A relative or a close friend comes to us with a tale of woe about some great financial disaster that has befallen them, then they ask you for a loan to help them get through their disaster. Your heart wants to help them, but your head says no.

The Simple Dollar has one piece of advice on how to handle this situation: never, ever loan money to a family member or a friend. By doing this, you’ve injected a business relationship into a situation where there was no relationship before, and thus the relationship will never be quite the same again.

If you feel like you must give them the money, make it a one-time gift. You should tell them that if they right themselves in the future, you would be happy to receive a gift in return. This way, there is no burden of debt in the relationship; you’re giving the money with no expectation of any return.

If you can’t easily afford to “gift” the money, then don’t do it; otherwise, you will introduce a level of resentment into the relationship. I have done this in the past in situations where there was a major financial burden put upon people who were otherwise financially responsible. In that case, they didn’t ask for any sort of loan; I just asked them how they were doing and gave them the money with the clear caveat that it was a one-time gift given because I loved them very much.

You should also never co-sign any sort of financial instrument that you don’t directly control. This makes you legally liable for any financial mistakes the other person might make, unintentional or otherwise.

So, how do you say “no” in this situation without seeming like the “bad guy”? The most important thing you can do is to listen carefully to their tale and ask lots of questions; many times, your ear and your advice are more valuable than a loan. Before you tell them no, do a little research with them to find other solutions to their situation. If they’re sinking in credit card debt, look into credit card counseling. If they’ve got an emergency expense, look for ways that various agencies can help cover the burden. This way, you can both come out of this with some education.

When you finally need to make it clear that you won’t loan them money, state that the reason you won’t loan them money is because the relationship you have with that person is not something you wish to taint with a financial arrangement. You should also offer any sort of non-financial assistance that you can offer: a couch to sleep on, some home-cooked meals, some professional advice, and so on are all worthwhile things you can give with minimal financial impact.

One fear that many people have is that saying no will damage the relationship. It will only damage the relationship you have if you just let it sit there and forget about it. Keep in touch with the person who requested the loan and ask them how their situation is going. This is an important moment – the person is in obvious need, so you need to be involved in their life right now, even if it is not on a financial basis. You may be able to help them in non-financial ways right now.

In short, loans aren’t the answer; love and an open ear are the answer.

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  1. I think this is great advice: I’m entirely in favor of helping family and friends financially, but making that help a loan makes you the boss of their finances in a way that’s not healthy for any relationship. So I completely concur: give your family and friends money if they need it and you can afford it. There are people whose pride will dictate that they pay you back anyway, but the point is, unless you can provide the money ungrudgingly, with no expectations, providing it will do more harm than good for the relationship.

  2. Sound advice. I’ve always approached giving money to friends in need in the same way as I approach going to a casino — don’t expect to ever see it back.

    If it comes back, great, it’s a bonus.

  3. There is a site on the net called https://www.paltrust.com/ and it basically deals with situations like these. They help you setup regular payments between you and your family/friend that you lent money to.


  4. Tom says:

    I once was in the following situation: my ex, with whom I was still friends after breaking up, asked me for a loan. She was between jobs, had no emergency fund and needed to fill a payday gap of 1-2 months. So she asked for 4k, or better 6k – no small sum.

    She had always, by my means, behaved financially irresponsible, which was a factor in our breakup. So the question didn’t really surprise me.

    I told her, I’d think about it and that she should also try to raise some money from her mom and/or one of her many friends, as I was the first person she had asked.

    So I spent the evening thinking how to handle this situation. Right from the start I was pretty sure I wasn’t going to give her the whole amount she needed. I didn’t want to say no completely either, as I didn’t want to be a total jerk.

    But why should I take responsibilities that she wasn’t willing to take? As I stated above, she had always been financially irresponsible, spending money she didn’t have on things she didn’t really need at that point, like clothing (her closet was already bursting) or shoes. She wasn’t saving a single penny of her income (which was substantial) and living a lifestyle she just couldn’t afford.

    I had always been willing to help her, not only financially (I had given her a loan before, which she paid back and I paid most expenses throughout the time we spent togther) but also with advice on how to better her situation. She always listened (so it seemed), only to go on doing as she had always done. And when she found another “unanticipated” bill in the mail she came to me crying (“I’ll never get out of dept, I’m doomed, …”).

    As I had no intention of being an “easy exit” for her, I decided to give her 2k. Better than nothing, so I thought.

    I phoned her the next day to tell her, which she – well – duly noted. No “thanks”, just a sort of “uh-huh”. I also told her why I wasn’t simply giving her the whole sum, which maybe came across as condescending.

    Then I went a little overboard on trying to get her back on track one last time, by telling to take care of a lot of loose ends, that were going to cost her money, if she didn’t. I talked for a while with her occasionally agreeing (“Yeah, I know, you’re right…”). Finally, she kind of snapped. She said that was all she was taking of all that crap I was telling her, if that was the price for getting a loan from me she would decline my offer. With those words she kindly excused herself and ended the call.

    The conclusion? We haven’t talked since.

    This may me a rather drastic example and one might question the quality of our friendship. I’m actually glad it turned out that way. Who knows what commitments I would have made down the road if I had just given her the whole sum to avoid an argument?

    The bottom line for me is this: if a friend or family asks me for help, I’ll help them as good as I can – IF their financial situation is not of their own making and I see them making efforts to solve their problem. I see absolutely no point in giving people money who are not capable or willing to be financially responsible for themselves.

    As for giving the money as a gift: that might create an emotional debt with the borrower that’s deeper than owing you money. I wouldn’t want that, so if someone asked me for a loan, I would either give it to him or not give him any money at all. Of course that depends on the sum involved.

  5. rebecca says:

    Great post. I totally agree. I’ve made the mistake myself, and I’m only glad I made it when the 3k I lost seemed like everything but, really, wasn’t (but it was a lot to a college kid eating beans and rice living off scholarship money!). In the end, though, I missed the friendship that was destroyed (not even because I put up much of a fight once it became clear that repayment just wasn’t going to happen, but because my friend was too ashamed) much more than the money.

    I particularly like the point that it’s better to make the size gift that you can afford to make rather than set something up as a loan. Even if it seems weightier and thus riskier, it’ll be worth it in the end – no matter how clear you are at the beginning, by midway through trying to pay back a loan your friend is going to resent paying you money – that’s just the way it works. A (probably smaller) gift, if you feel it’s appropriate, is a much better way out.

  6. Kian Ann says:

    Wow… this is wonderful advice. Sometimes I think I am just to soft hearted to “reject” a friend or relative, and I don’t want to be a “bad guy”. Your thoughts about giving the non-financial assistance helps. Thanks.

  7. Toby says:

    Tom’s story has some good points. How do you treat someone who you *know* manages their finances poorly without seeming judgmental?

    The “paycheck-to-paycheck” crowd is mainly interested in surviving the next two weeks. They are reactionary, that is, when something happens in their financial world it is a surprise and they have to react on the spot. There is no planning ahead, no seeing possibilities, no saving, everything is an emergency. They go through their lives with financial horse-blinders on and no long-term memory of their financial past. They get mad if they ask you for money and you bring up the last 3 or 4 times you lent/gifted them money for an “emergency”. The current situation is all that counts.

    From the outside, I can see that their rent/mortgage comes up short about every 6 months. There is never any money set aside for basic car repairs (or registration for that matter). Yet they can still go out and drop a couple hundred on a Friday night. I know, I know, they work hard and they are entitled to a little fun…

    But as the people they turn to for loans, where does that leave us? When something comes up, to them it is the end of the world (they can’t make the mortgage payment!!!!). To me, it is yet another example of their bad financial behavior.

    When their only car breaks down and they can’t get to work, do you give them money to get it running again? After that “gift”, how am I supposed to feel when a week later I hear that they went out and dropped $200+ on a Friday night?

    When I was relatively poor, it seemed I was more willing to “help out a friend” because everyone ran into a rough spot every once in a while. Now, the more I advance in my career, the my net worth grows, the less I feel that I should help out when financial mismanagement is apparent.

    Does that make me judgmental? Does it make me callous and uncaring? Do I lack empathy? Maybe. But I also know what it takes to dig oneself out of debt and turn things around. I know what it takes to build up an emergency fund and modest savings. I know that many so-called “emergencies” can be planned for ahead of time and I have put all of this into action. While I am not impervious to fate, it would take a hell of a storm to cause our financial boat to start taking on water.

    I realize that every $1000 I hand-out to a financially irresponsible person is money completely wasted. It does not help them in the long-run and only hurts my own situation. That $1000 turns into over $6000 in 20 years at 10% return. It turns into over $15k in 30 years. Should I save that money for my children’s college education? Should I save it for my retirement? Or should I use it to buy yet another bucket for the Titanic?


  8. None says:

    I once read a book of proverbs about money from all over the world. Practically all languages and cultures had at least one to the effect of “don’t lend money to someone you want to stay friends with”.

  9. Jupiter says:

    OH NO!!!
    So what do I after I lended money to a friend and the relationship feels ackward. I never make her fell like she owns me money, but she driving me crazy with her irresponsable spending.

    How do I fix this? I want my money back. I worked for it and saved it bit by bit, and she is enjoying it.

  10. Margaret says:

    Jupiter — work out a repayment plan, present it to friend, and say do you want to do it this way, or would you rather propose something. Ask for postdated cheques right through to the end. Explain how the loss of the money is hurting you (do you have ANY debts — then you are pay X amount of interest on that money that you loaned). Tell her it bothers you that she spends money on things when she owes you money. Tell her that if she would just make a repayment plan and honour her obligation, then you wouldn’t care how she spent the rest of her money, but when she is not repaying you back, it is a personal affront that she chooses all these other things as a greater priority than you. Try to get her to sign something about the repayment plan or debt, because you might decide you want to go to small claims court over it, and you will need proof. This might end the friendship (if you resort to court, then I can’t see how it wouldn’t end the friendship, but even though you were doing the kind thing by lending the money and they are wrong by not repaying you, they are going to view you as a debt collection agency, and you know how popular they are. I loaned money to someone once and it was really hard to get her to start paying me back. However, I decided if she didn’t care enough about me to honour this obligation, then I could live a happy life without her, and I would rather be known as the b****y person you have to pay back, or even better that you don’t ask for money in the first place. Good luck — it probably isn’t going to be pleasant.

  11. klf says:

    Weell, there is that old saw, “Neither a borrower nor a lender be.” And for good reason.

    The above notwithstanding, I have given money to both friends and a relative, with the expectation and hope that I would get it back. I found it interesting that I did eventually get the money back from the friends, but never from my relative. The friends were as equally poor as I was at the time, and the relative and his spouse were bringing home over $80,000 (back in the early 1990’s).

    If my friends asked to borrow money again, I would still do it. The relative? No.

  12. Tim says:

    When they ask for help, some people don’t believe that help can come in any shape or form other than money.

    You lend someone money, (s)he doesn’t pay it back but rather goes out and has a ball. You don’t want to look like the bad guy so you don’t say anything.

    The truth is, they are the “bad guy”, they are ruining the relationship. They deserve everything they get because they bury their head in the sand. If it means the end of a friendship, you are better off that way. If it means your family are upset with you, just explain those points and always be available with non-financial support.

  13. Derek says:

    I too have had a bad experience lending money to a relative — well, not even “lending”. During university, it came to be that I was expected to loan my sister several grand, because I had money and my sister did not. I’m still not sure if or when I agreed to that.

    When I was asked for the loan, I refused, stating my case — full university course load, car, part-time job — and I didn’t even know of this lending “responsibility”.

    Here’s the kicker. My entire family became upset with me. I pretended to storm out, slamming the door, except I stayed on the inside. I heard things I wish I didn’t — from everyone, my sister, dad, mom — and I will always have a memory of these things.

  14. Lee says:

    Something that’s worked for me: When asked for a loan (of any size) – I reply that right now I can only afford to lend “x” – where “x” is an insignificant amount.

    The borrower will, of course, never pay it back, but I am then “off the hook” for further requests from that person.

    Why? Because the borrower knows they have an outstanding loan with me, they will almost never ask again. And if they do have the cojones to ask for another loan, I just explain that I won’t make any further loans until their outstanding loan is paid.

  15. Jody says:

    I am in a weird situation – I am a teaching assistant who makes minimum amount of money, the teacher I work for makes three times the amount.
    I also am a single parent of two children with one in college. Two years ago she asked me to borrow money because they were going to be evicted from there home. I felt bad and loaned her $1k with the understanding she would pay me back as soon as she could. Recently I have had alot of resentment towards her because she is now talking about going to Alaska with her family and Las Vegas – I tried sending her an e-mail over a week ago and asking her to let’s talk about setting up a payment plan (since I now have depleted my savings). She has not responded to my e-mail or made any sort of attempt to talk to me at work about it. What suggestions do you have? Should I confront her face to face? Should I print out a copy of the e-mail and leave it on her desk? I know this will change our working relationship- why does this make me feel like I have done something wrong, when all I did was to help a friend out in need? Thanks for any advice I can get.

  16. Sherry says:

    I recently learned the hard way too, Jody. Once you make the loan, the relationship is forever changed.

    Maybe someone else can help us out because I was the lender and now I also feel like I did something wrong! I’m now the jerk with ‘the perfect life’ because I’m financially responsible. I even have this guilt feeling that maybe I don’t deserve to be paid back because I am better off than the borrower!

    My husband and I loaned 16K to a relative because he was going through a divorce, was selling his house and was being separated from his kids against his wishes. He had so many things going against him..I was afraid for him. He said he would pay us back as soon as the house sold. (So we figured 6 mos to a year max). He finally sold the house but didn’t tell us and turned around and bought another one with the leftover money and mailed us a check for 3K (we live a few hours apart). We had nothing in writing since we in good faith believed as soon as the house sold we would be all set.

    We remained friends with him and assumed he would be a good man and start paying when he could. Shortly after, he lost his job so we couldn’t ask for payment. After a year, he found another job. He’s been working for a year now with no sign of any repayment so I finally asked if $100 a month would be reasonable. He called me a few names and told me to enjoy my perfect life.

    The funny thing is, he’ll be friends forever with all of our other siblings who would never have even considered helping him but he will forever hate us? What sense does that make?

    I will never loan money ever again..

  17. JaneDoe says:

    Money is funny – it really isn’t funny at all when it comes to loaning however.

    Worked full time while going to school full time, family was always conscious of handling money & taught us good skills. After grad has good career but also spent the same while now saving more & investing. No one was the wiser to the money situation. Finally married later in life to a older man that is my heaven on earth. As perfect as you can get. He never had children as his (putting himself thru school also working full time 4 degees, job req around the clock dedication & traveling alot! One vaction in 20+ yrs. total dedication & hard work. Hence marriage disolved w/no children. We are in perfect bliss & loving every minute together.
    HOWEVER, as everyone else has also meationed we should now be supporting all my friends that “heard” I married a man w/$. Rollercoaster of emotions. You try & explain if I wrote a ck everytime I’m asked for some crisis from someone I probably won’t be married – he isn’t a ATM. Not that I say it that strong but whatever you say preceeds with so much guilt & then never hear from them again. It just keeps happening! I hardly talk w/anyone (f/the beginning of our relationship) about our life because it is so blessed. It would be different I guess if I talked about $ or anything we do but I am still mentally living on $1000 a month as in the old days.

    I totally feel for all the above individuals above that have wanted to do the right thing & have been burned. I was in the finanical field which I try & see if I can help thru that manner of advice/a different avenue but people don’t want that, they can’t seem to change their mindset/situation to see how to stop the bad decisions that got them there in the first place.

    My husband is so wonderful & trys to comfort me when I’m upset, torn up, guilt ridden etc to say we can’t help everyone.

    yet everyone keep asking!!! Why should I feel guilty & people that haven’t even had a chance to meet him think of a dollar sign.

    To all the above comments, thank you for emailing, it has helped me as I have never blogged before & just using the computer for something other that a quick email. Good Therapy – thanks!

  18. Hope says:

    Thank you so much for this conversation. I came across this forum because I was searching/googling for answers about why men borrow money from women.

    Last week, my married/legally separated boyfriend asked for money to pay this month’s minimums on his credit cards — $650. At first I said I didn’t have the money. I do have the money and he knows it. He cajoled me and reminded me that I told him last year I would save him $100 per week till his divorce was final, supposedly this August. This is true — I was saving an extra $100 per week. I relented and said I would GIVE him his saved money. It would not be a loan, but a strange sort of borrowing from himself, even though I saved my own money for him.

    I should note this man is currently on workman’s compensation due to an injury, and as per his separation agreement, he must turn over his pension check (he’s retired form another career) to his ex-wife-to-be. He said workman’s comp has not sent him a check yet and he just wanted this loan to tide him over till it came in and so his interest rates on his credit cards didn’t go up because he would be late paying. Additionally, I made my boyfriend an offer of working for me during his sick leave. He refused, but has instead spent his days fishing and camping. I have known him for nearly two decades; he has always overspent, owes tens of thousands in credit card debt, has three grown children and a ramshackle house that is an inch from foreclosure that won’t/can’t sell in the present real estate market. He still lives in that house with his ex-wife-to-be. He hasn’t taken me on a date in over a year and he shows up here if doing so doesn’t interfere with hunting, fishing, or his kids. Bizarrely, I convinced myself I “LOVE” this man to the ends of the Earth. I know he doesn’t love me and I also know that giving him money would be equal to trying to buy love. Money doesn’t buy love:
    I should also confess/note: I was married to another man for a few years who I financially supported 100% and who left me with tons of debt at the end of the marriage.

    The end of the story goes like this: After I agreed to give said boyfriend the $650, he stopped returning my phone calls. When I finally reached him two days later, he was mean, distant and said I was interrupting his fishing. I was simply calling him to find out when he was coming to pick up the money. When he finally called me back the following day, he said I gave him such a ‘hard time’ about the money that he instead borrowed it from a male friend. He hasn’t called since.

    In a way, I have relief, because I can say I learned from my past marriage that cost me nearly a quarter of a million dollars. My ex started the borrowing/taking in small steps, just like this man. Even though I said yes to the loan/gift to this man and HE refused it, I feel I was somehow protected. But I feel like the ‘bad guy’ because I make way more money that this man and he gave me the feeling he was somehow entitled to it — just like my ex-husband.

    I cannot allow the past to repeat itself. I am embarrassed even as I am writing all of this, but I am very grateful to have found a forum where this is being brought in the open without having to go public. I am well-respected and known for what I do and I cannot talk about this even with people I consider friends. Thankfully, I have been in psychoanalytic treatment to get to the root of why I do what I do with money. I pray that this recent development with this man will put a complete end to my destructive tendencies with money.

  19. family pocketbook says:

    My brothers and sisters don’t call me for months or even years, and then my cell phone will ring. It will be one of them asking for money. They’ll explain the whole situation and ask that I keep it between us and not tell the parents. Rarely do they ever ask how I’m doing. When I say “no” they don’t call again.

    The reasons they ask for money are usually so stupid I can barely stand to listen to them. The last time it was “my roommate is so dramatic… I have to move away from her but I can’t afford it. There’s an apartment I want but I need money now or I’ll miss out!” Gee, that’s such a dire situation. You have a roof over your head and food on your plate. But your roommate is dramatic. Hmm… and you’re how old? FORTY TWO? Grow the f— up, get your $#!% together and lose my phone number.

  20. John says:

    This really hit home for me. in 2006 my sister and brother-in-law hit our mother up for a $50,000
    loan. It was never paid back. Earlier this year they asked for $54,000 to put their kids through college. I stepped in and said the following.
    “You two in 25 years of marriage have had 4 bankruptcies, 2 foreclosures totaling just under 5 million dollars and now you want mom to pay for her grand kids college for the year. I was the heavy and said You can forget about it. Don’t even ask. Now they live in fear of asking our mother for any money and I am hated. That’s fine. I have no sympathy for them because of their selfish over indulgence and constant sense that they are entitled. It felt and still feels good to have broken this pattern. I know now that or mother feels like she can now not worry about her finances in case she may need this for her future survival.

  21. Aaron says:

    Ive had quite a few peeps asking me for a loan.

    There’s that ex-colleague who just had a grand wedding and needed a 1k loan to settle the bills post-wedding (ahemm).

    There’s that first cousin whom I havent seen in years and upon meeting one day and exchanging phone number, proceeded to ask for a couple of hundred of dollars the following week.

    There’s that favorite niece who asked for $200 loan during university and failed to pay it back (I didnt mention it’ a gift or a loan – it’s just that she was asking for a loan and I gave it to her… was testing how honest she gonna be… it’s totally forgotten, as if the $200 never happen). That same niece is now getting married in 2 weeks time, didnt bother to notify me of the wedding and now asking for 3k loan (ermmm sorry? who are you again?)…

    There’s that ex-colleague who paid the downpayment for his first car using his credit card and felt proud with what he did. Whom never paid the cost of a $26 t-shrt he borrowed from me (cuz he was saying he’d run out of cash and could I just pay for the $26 first?). That same guy has the audacity to ask for 1k loan…

    To all of the above – I’ve said no. I have a list of sob stories to sell to them whenever a loan request pops:

    Oh, I’ve just paid for my course and got not much left to loan out. Sorry, wish I could help.

    Oh, I am going to Country X next week so I am savng up for that one, you know holiday takes $$$. Soree-reeeey…

    Oh, wish I could help but I’m in a bad place myself right now and will not be able to loan any to you.

    Oh, I am so sorry… I have a policy of not loaning any money after I’ve been burned a couple of times. No more. I am sure you understand my situation.


    Most times they wont ask again. If you do give though, they tend to ask again.

  22. Aaron says:

    When it comes to relative – if its a big sum not paid, make it as a great newspiece and share it to every other relatives and then tell them that you’re just sharing that story with them and not to tell anyone else. Soon, the story will have bigger fan base. :D

    You can start with… Hey, can I ask you a question? Was wondering if Joe/Jane has ever asked you for a loan before?

    The same can be done to friends (especially those ungrateful fellas). Just tell the story to mutual friends.

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