“Should I lend money to a friend?” is a question that comes up on this site from time to time. A lot of people say it’s a bad idea in almost all cases, while others say they will lend without the expectations of getting the money back. While I’m generally adverse to lending to friends and family, I have done it on a number of occasions. Even though a lot of people would be against this, I feel that if I can help my friends, then I should. I have lent as much as $10,000 to a friend and have lent money in smaller amounts to a number of different friends for a variety of reasons. Although I have heard the horror stories and bad experiences of lending money to friends and family, I’ve never experienced this. Every friend I have lent money to has paid me back. Even if this weren’t the case, I would still continue to do it.
There is one important caveat to my lending. Just because I have lent money to friends doesn’t mean that I lend money to anyone who asks. In fact, I have had to turn down far more people who have asked me for money than I have given out loans to. Although I don’t have a specific checklist of what’s required for me to loan a friend money, there are a number of reasons that will immediately disqualify a friend from me even considering giving them a loan. Below are some of the reasons why I won’t lend money to friends.
You Have Enough Money for Bad Habits
If you have enough money to buy a pack of cigarettes a day, drink heavily or buy drugs, but say to me that you need a loan, you aren’t going to get one from me. Yes, it’s difficult to stop these habits, but there is a good chance that one of the reasons that you need the loan in the first place is, to some degree, because of them. I loan money to friends to help them out in difficult times, not to help them perpetuate their bad habits.
Some Work is Beneath You
If the reason that you need the loan is because you’re out of work, but you have turned down work opportunities because they weren’t right for you or below your perceived level, I’m not going to give you a loan. Hard times require difficult choices and sometimes it’s necessary to take any work available, not just the work you feel is at your level.
You Haven’t Solved the Problem That Requires the Loan
There is a reason that you need the loan. If you haven’t put in place something to address and take care of the issue which has caused you to need the loan in the first place, then any loan I would give would end up being worthless since the same problem would continue to plague your finances. You need to show me you understand what happened to get you in the current situation, and how you have put in place a system so it won’t happen again.
You Have an Excuse for Everything
I’m not a big on listening to those that have an excuse for anything and everything. If you tell me that the entire reason that you need a loan is everybody’s fault except you’re own, I’m not likely to lend you anything. It’s important to take the responsibility so that I know there won’t be even more excuses when it comes to paying me back.
You Won’t Sign a Promissory Note
Anyone who I lend money to, I ask them for a promissory note. If you hesitate or give excuses as to why you won’t / don’t want to sign the promissory note, then I will refuse to lend you money. If you are willing to ask for something and say that you will pay it back, you should also be willing to make it official. Any excuses as to why you aren’t willing to do so simply show me that you aren’t sincere when you say that you will pay it back.
You Don’t Tell Me When I Will Get My Money Back
If you want some money from me, I expect to have a timeline when that money will be paid back to me. If you simply say “when I can” or “when things get better” you will have to find someone else. I expect that you have thought things through enough that you know approximately how you will pay me back and how long that will take. If you haven’t thought this through to this degree, then I’m not the lender for you.
You Refuse to Consider a Second Job
I know that most people don’t want to do a second job. For most of us, one job leaves you pretty exhausted by the end of the week, so a second job can be quite a sacrifice. But there are times when making a sacrifice is what needs to be done. If you want to borrow money from me, but at the same time aren’t willing to take on more work than your primary job to pay me back, then I won’t be inclined to make a loan to you.
Your Car is Better than Mine
This isn’t literal because I drive a pretty simple car that is probably not as good as most people’s cars out there, but it is a general guideline that I follow. If your car is significantly better than mine, and especially if it’s much more than you need for your basic transportation, I won’t be giving you a loan since I know you can trade in the car to get the money you want to get from me.
You Have More Than Two Cars in Your Household
Along the same lines, if you have more cars in your household than you need, I don’t see why you would need a loan from me when you could simply sell one of the cars for the money. Yes, this might mean that junior won’t have his own car, but the reason I would give the loan isn’t so he could continue to have his own car.
You Can’t Explain How You Plan to Pay Me Back
If you don’t have a plan in place where you can explain how you will pay me back, then you won’t be seeing any cash from my wallet. While I don’t necessarily expect that there will be a detailed plan, I do expect the basics of that plan to be in place when you ask. If you have the attitude that “we’ll take care of that later” then I don’t believe you have put in enough thought about how you’ll pay me back.
You Owe Money to Other Friends
If I know that you owe sums to others in our group of friends, there is little chance that I will end up extending you a loan. If you have borrowed from others, but haven’t paid them back when you come to me for funds, how can I expect that I will ever get paid back. The way that you have handled money in the past is something that I take into consideration before I give any loan.
You Want It for a Want, Not a Need
I have found over the years that what people believe is a need and what is actually a need are two completely different things. I’m more than happy to lend money to people who have a legitimate reason for needing a loan, and that loan is going to go toward a need: food, shelter, basic clothing, etc. If the request is being made because you can’t pay for your cell phone bill, you need to go on a weekend getaway to escape all the stress in your life, or you feel it’s time for another car even though the one you have still runs fine, you won’t be getting the loan from me.
You Think It’s OK Because I Have Money
If you have the attitude that you feel that I should lend to you because you don’t have money and I do, you aren’t going to get a loan from me. The reason that I do have money is because I have been financially responsible and have spent less than I make. If you are in need of a loan, there’s a good chance that the reason why is that you haven’t been financially responsible. The attitude that you feel you’re entitled to a loan just because I happen to have money proves to me that you still lack the financial responsibility for me to make you a loan.
You Refuse to Consider Other Options
Having written about personal finance for a number of years, I’m pretty good at finding out where leaks are in people’s budgets. I’m also pretty creative and can often come up with ways to do things differently (or for less money) that others may have never considered, but still solve the problem. If you ask me for a loan, but refuses to consider other legitimate ways to get what you need without it, then I’m not the person to give one to you.
You Won’t Take Your Own Lunch to Work
This isn’t so much about actually taking your lunch to work as an overall look at your willingness to cut expenses where ever you can. If you refuse to take your own lunch to work, and instead insist on buying it each day at a restaurant (I do realize that some companies provide meals for their workers at very good prices), it simply tells me that you aren’t taking reducing your expenses seriously. Due to this, I wouldn’t be the one to give you a loan.
You Continue to Buy Your Morning Cup of Coffee
Much like the taking your own lunch to work, if you feel you need a loan, but at the same time think it’s OK to buy your morning coffee on the way to work, you haven’t made enough effort in my eyes to justify giving you a loan. Even if you claim this is your only splurge (which I have heard before), your willingness to ask me for a large amount of money while not having the willingness to stop your morning coffee purchase tells me that I’m not the one to help you out.
You’re Unwilling to Sell What You Have
If you have a lot of valuable items lying around the house that really aren’t necessary, but you refuse to sell any of them for whatever reason, then I’m probably not the one you should be asking for money. Most people have far more than they really need, and if selling the stuff you already have is off the table to get the funds you need, then I assume you aren’t serious enough to be asking for a loan from me.
You Blame Your Financial Situation on Others
I realize that some financial situations are out of people’s control (that’s why there’s insurance), but if the reason that you need a loan is because of some life choices you have made, then own up to the choice, explain to me how you’ve learned from the lesson, and explain to me how it won’t happen again. If you insist that the issue that caused your current financial situation is always somebody else’s fault and you have no responsibility for the situation, you better be able to convince me of that or I won’t be lending any money to you.
You Lack a Plan
I expect that if you ask me to help you out financially, you have a plan in place on how the entire loan and repayment is going to work. If you come calling without this plan, then you aren’t someone I would feel comfortable lending to since it doesn’t seem that you have thought things through thoroughly enough for my ease of mind.
You Haven’t Made Any Sacrifices
If you come asking, but at the same time refuse to make any sacrifices to your current spending or lifestyle, that sends up a big red flag for me. While it’s never easy to change one’s lifestyle, refusing to do so in the face of lack of funds is a sure sign that there is more trouble to come down the road.
You Continue to Live above Your Means
Personal finance is pretty easy once you learn that in order to save money, you need to live within your means. If you still haven’t figured this out when asking me to help, then I can assume that whatever amount I loan will never make it back to me. You need to be spending less than you make for me to consider your proposition.
You Have Poor Priorities
When you explain about how the money will be used, and in the way in which it will be paid back to me, the priority in which it will be paid back is important. If your priorities are to make others whole or spending it on some of your wants before paying me back, these poor priorities will likely result in you not getting a loan.
Material Things Continue to Matter to You
While asking for a loan, if you still feel it’s important to continue to purchase new stuff before you’ve fully paid off the loan you received from me, you won’t be getting one for me. I assume that if I decide to give you a loan, paying it back will trump the other materialistic urges you may have. If it doesn’t, then I’m not the person to help you out.
You Don’t Understand Value
This one can be a difficult one for many, but I feel it’s extremely important. If you approach the current financial crisis by cutting back on everything, and only buying the cheapest things available, you likely don’t have a good sense of value. While buying things that are cheap may save you some money in the short-term, it will likely cost you much more in the long-term. Understanding value, and getting value out of the things that you purchase, is an important way to get your finances back on track which will allow you to pay me back.
You Insist on Designer
If you continue to insist on purchasing designer brands while also needing to borrow money, that will be a red flag that you won’t be getting the loan from me. If you have a lot of designer merchandise, it might be a good idea to look into liquidating these for the money you need rather than asking me to help out.
You Still Play the Lottery
The odds of winning the lottery are minuscule at best, so if you continue to play the lottery because “there’s a chance I could win big” and “you can’t win if you don’t play,” I have little faith that you understand the basic fundamentals of money management. When you have money troubles, playing the lottery is like throwing money away. That’s not the type of person I want to lend money to.
Your Kids Get Everything They Want
Some parents just can’t say no to their kids no matter what the current financial situation. Part of being financially responsible is being able to say no to unnecessary purchases no matter who in the family is making them. Hiding the kids from the reality of the current financial situation by continuing to give them any indulgence they want is not going to benefit you or them.
You Are Lending to Others
If part of the reason you need to borrow money from me is because you are lending money to other people, then I’m not likely to help you out. If you don’t have the money yourself, you shouldn’t be lending to others in the first place, and if I am going to give a loan, it would be for you, not for someone else that you’re passing it onto. If I wanted to give them a loan, I would give it directly to them.
You Continue to Eat Out
This might not seem like a big deal, but it’s another indication that you aren’t making some of the most basic efforts that most people make when they get into a bit of financial trouble. If you feel it’s OK to continue to eat out on a regular basis instead of making your own meals at home, I feel it’s OK to not help you out on your request for a loan.
Everything is Disorganized
I’m not necessarily talking about your house here, but everything in your life. If it seems that you are running around like a chicken with its head cut off with never enough time to do all the things you have to do each day, I will make the assumption that any money that goes to you will end up disappearing into the frantic disorder. Often times money issues aren’t about money and other aspects of life need to be addressed before the financial issues can be solved. Being disorganized is one of them.
You Can’t Make Difficult Decisions
Part of money management is having to make difficult decisions from time to time. If you have all the good intentions in the world, but when it comes down to it you can’t make the difficult decisions to get your finances back in order, you aren’t going to be able to make those same difficult decisions in order to pay me back.
Your Spouse Isn’t on the Repayment Plan
If you’re married or have a significant other, they also need to be completely on the financial plan you present to me. If you’re the only one who is committed, chances are it’s not going to work out well. All parties involved need to sign on to make finances work, and if one isn’t on board, that’s a good indication that the best laid plans will end up getting sabotaged in the long run.
You Throw Parties
I understand that getting out with friends is important, but if you feel that it’s necessary to entertain (while paying for everything) while asking for a loan, that tells me that you really aren’t serious about getting your finances in order. If, on the other hand, your entertainment consists of a potluck where everyone contributes, then I would have a much more favorable view that you are making the compromises to get things back in order.
You Find It Easy to Ask
Asking for a loan shouldn’t be easy. It’s something that you should have thought about long and hard, while exhausting all the other opportunities that might be available to you. By asking, you must realize that you have placed me in a spot where I now need to make a difficult decision. While I’m more than happy to make it, if you find it easy to ask without giving it much thought, that indicates that you haven’t thought through all aspects that you need to for me to give it to you.
You’re Still Planning to Take Your Yearly Vacation
There have been a number of years when I have opted for staycations rather than vacations when money was tight, so if you’re still planning to take yours while asking me to help you out, that’s not going to fly. If I decide to help, that help isn’t so you can go on a family vacation, but to get you through difficult times. Cancel your vacation and use the money saved instead of trying to hit me up.
You Consider Me Your Emergency Fund
If every time there is some monetary crisis in your life you turn to me for help, I’ll stop lending to you, even if you have paid me back in the past. There is a reason that you should build an emergency fund, and that is to deal with the unexpected money emergencies that arise. You need to build your own emergency fund, not rely on me to be it.
It’s for a Money Making Scheme
When I lend money, I’m lending to help you out of current financial trouble, not financing some scheme where you think you’re going to make a lot of money. If you need money to finance some money-making opportunity that you have heard about, you’re going to have to find another source than me to get your project off the ground.
You Act as if It’s No Big Deal
It might not be a big deal to you, but it certainly is to me. I’m not looking to make an overproduction of the request, but I’ve worked hard for my money and so I don’t lend it without giving it any thought or consideration. Any request that makes it appear that it’s not a big deal isn’t likely to get funded by me.
You Expect It
If I feel that you expect me to make the loan because we are friends or family, and only because of that reason, I’m not likely to help you out. Our friendship and money are two separate things. If you expect me to help you out and our friendship will suffer if I don’t, then I have greatly misjudged our friendship in the first place. Just because we are friends doesn’t mean that I will automatically give you money.
I’m Your First Choice
If you come to me as your first choice in trying to solve a money issue that you have, then that’s a good sign that you still don’t have the financial responsibility needed for me to give you a loan. I should be far down on your list, and you should have tried numerous other ways to get the money you need before you come to me.
Your Story Doesn’t Make Sense
When you come to me, the reason that you need the money has to make sense to me. This might sound like something that is obvious, but there have been a number of times that people have asked me for money that made absolutely no sense. Either what they thought was a necessity wasn’t, or the story of why they needed it just didn’t add up. If I’m going to help out a friend, what I’m helping with has to make sense to me.
You’re Trying to Avoid Consequences
Decisions have consequences. This is an important money lesson that everyone needs to learn and understand. If you’re seeking money to avoid the consequences of a poor decision that you made, I’m probably not the person that will be willing to help you out. Sometimes it’s better that you suffer the consequences even though they’re going to be hard so that you don’t make the same financial mistake again.
This is the Only Time I Ever Hear from You
I have good friends that I don’t see often. That doesn’t mean that I don’t care for them, just that our schedules make it difficult to meet often. If the only time you seem to be able to make contact with me is when you need to ask me for money, that’s a sure sign that you aren’t going to get any from me.
You Lie to Me
I assume that when you explain why you need to borrow some money, the reason that you give me is the truth. If I find out that what you told me isn’t accurate, or that you happened to leave out some important information at a later point, that will be enough that I wouldn’t feel comfortable lending you the money.
You Don’t Take Things Seriously
While I don’t expect that asking me will be as somber as a funeral, I also don’t expect it to be all fun and games. There is a happy medium there, and if you’re tilted to the fun and game sides when asking, I’m probably going to pass on helping you out.
You View Me as a Bank
Just because I have money doesn’t mean that I’m a bank, especially one where my money is your account. That should be obvious to you because the only reason you should be coming to me with the request is because you couldn’t get a loan from a bank. If you view me as a convenient way to get money when you need it, I’m not the right person to ask.
You Want an Immediate Answer
When I’m asked to help a friend or family member, I usually need to take some time to think about it before I can give an answer. If you demand an immediate answer to your request, then the answer will be an easy no.
You Have Failed to Payback Small Loans
When I go out with friends, there are times when someone ends up being short for whatever reason and may ask if they can borrow a few dollars. I’m more than happy to help out on these occasions, but if I have done this and the friend has never made the attempt to pay me back later, I’m not likely to help them out when they come asking for even more money. Your history matters.
You Complain about all the Sacrifices You Have to Make
While I want to see that you are making sacrifices to get your finances in order, I don’t want to hear constant complaining about all those sacrifices that you need to make. I understand they are difficult because I have had to make them over the years, but that doesn’t mean that you should constantly complain about them. Making sacrifices is part of money management, complaining about them isn’t.
You Continue Extra Curricular Activities
If you still feel it’s OK to play a $100 round of golf each weekend instead of figuring out a way to earn a bit of extra money in your spare time, I’m not the one that will help you out. I know that it’s important to relax and escape every once in a while, but that can be done without spending much money doing it. If your extra curricular activities are expensive and you feel that they’re necessary to continue them while asking me to lend you money, I will likely pass.
You Spend $200 for Jeans or a Haircut
I understand that not everyone is willing to buy their jeans at Costco and cut their own hair like I do. That being said, if you insist you need $200 jeans or a $200 haircut while also asking me to lend you some money, that would be enough for me to decline the request. You don’t have to live exactly like me, but if your spending isn’t even in the same realm, I won’t feel comfortable doing it.
These are just a few of the things that came off the top of my head when asked who I wouldn’t be willing to give a loan to. If I spent more time, I’m sure I could make this list even more extensive. Are they harsh? Some may think so, but since I have had to make sacrifices and tough decisions to save the money that I do have, I’m not willing to let someone else avoid those if they want to get a loan from me.
In the end, my list is my list and there may be things on it that you don’t feel are important or aren’t a concern to you. On the other hand, there are probably things that don’t concern me that would be a big concern to you and would disqualify someone asking to borrow from you. The main thing is that if you are in a position to lend others money, you have some basic parameters of who you will and won’t lend money to with which you feel comfortable.
In the end, I never expect repayment. I put in place what I feel are basic fundamentals that give me the best chance of being repaid, but if it didn’t happen, I wouldn’t pursue it. If I get repaid, I count it as a pleasant surprise. Because of this, I never lend money if I can’t afford to lose 100% of it. At the same time, I don’t throw away my money needlessly since I have worked hard for it.
Do you have specific rules of when you will and won’t lend money? Do you have other rules that would disqualify someone from ever getting a loan from you?
(Photo courtesy of David Neubert)