Lending Money To Friends

Repeat: Never Lend Money to a Friend
From: The Wall Street Journal

by Jeff D. Opdyke
Reprinted in the Honolulu Star Bulletin on July 6, 2003
My friend Lisa recently posed a question that has long

plagued many people: When do you say “no” to a friend or
relative in need of money?
Lisa, it seems, has a friend who has called several times

in the past couple of years, usually looking to borrow
money. Lisa has always helped out, largely because she has
a big heart and in part because her friend is a single mom
struggling to raise her child without the help of the
father – a situation, Lisa recognizes, “that can’t be
easy.”
Still, whenever Lisa answers the phone and hears her

friend, she cringes. “She calls only when she’s
desperate,” Lisa says. “I feel the tension. It would be
nice for her to call and just say, ‘Hi, how are you?’”
We all have heard the warnings about the dangers of lending

to – or borrowing from – friends. Don’t do it, we’re told.
It only means trouble. You’ll end up regretting it. And
yet...
Sometimes you want to help. Sometimes you feel compelled

to help. Sometimes you just don’t know how to beg off
without sounding like some kind of Scrooge.
And so you say yes. And then you discover that everybody
was right: When money comes between friends, the biggest
risk is that you stand to lose both.
Lending money to friends, or borrowing from them, is rife

with all sorts of sticky issues both sides often are loath
to confront. Should you, the lender, charge interest? And
if so, at what rate? Should you, the borrower, offer to
pay interest to save your friend the awkwardness of having
to suggest it? Where should the lender rank among the
borrower’s list of creditors? After all, it’s convenient
to avoid a friend when Visa has a hit man gunning for you.
And how do you, the lender, bring up the topic of repayment
when the payback has been slow in coming?
A woman I work with found herself in a cash bind several
years ago, and a friend with a hefty bank balance offered
to front her the $3000 she needed. She accepted and agreed
to repay him in equal installments over 10 months. Then
one month, she says, “I was extremely busy and simply
forgot that I hadn’t given him a check. He brought it up
and I was humiliated. It was just so embarrassing.”
From that experience she realized that loans between

friends, and even between extended family members, create
an imbalance in the relationship and puts everyone involved
in a clumsy position. Suddenly, she says, “you’re not on
an even playing field. You have an obligation to them and
they hold sort of a power over you, even if they don’t make
a big deal out of it.”
“It’s very uncomfortable,” my friend says. “I was so

relieved when I paid all the money back. I vowed never to
do it again.”
As uncomfortable as it can be for the borrower, as a lender

you face an equally impossible situation. Dare to rebuff a
request for a loan, no matter how graciously you handle it,
and you risk damaging the relationship. Agree to the loan
and you risk possibly never seeing your money again,
creating animosity and resentment and potentially
destroying a friendship over money.
In law school, Laura, a friend in New Mexico, lent a friend

$100 – a princely sum to college student. Several times
Laura tried to recoup the cash, only to hear, “I’ll have
the money next week.” Eventually, Laura gave up, on both
the money and the friend.
“I was still angry that she didn’t seem to feel obligated

to pay it back, which made me not want to be around her
anymore,” Laura says. “End result was a total lose-lose:
no money, no friend.”
Family is no different. In fact, saying “no” can be

magnitudes more difficult – as can getting your money back.
“You want to help your family because, well, because

they’re your family,” says my colleague Carlos. ‘It’s the
right thing to do. You don’t want your sister-in-law to
face bankruptcy or something” if you have the money to help
prevent it. Carlos recently lent money to two family
members, one seeking to avoid disgruntled creditors, the
other needing cash for a down payment on a house.
With family, Carlos says, “you have to go into the loan

expecting to be the last one paid, and expecting that they
will offer to pay interest but knowing that they won’t.
And you shouldn’t charge it anyway.” And, besides, he
says, who wants to go after a family member who’s slow to
cut you a check?
That’s not to say frustrations don’t simmer. Alex, a New

York friend, recently says she lent her kid sister “a bunch
of money” when the sister overextended herself at a school
auction. Alex never expected to be repaid, “but truth be
told,” Alex says, “she hasn’t even offered or brought it up
and it’s kind of bugging me, especially since she is
vacationing at the moment in the south of France.”
The one sometime exception to all this is when a parent

lends money to a child. In these cases, more often than
not, the parent’s aren’t really expecting to be repaid;
they’re lending the money out of love and obligation.
That doesn’t mean parent-child loans don’t have their own

special traumas, of course. One colleague tells of
borrowing money from his parents – and then repaying them.
But he has a sister who borrowed even more, and most likely
will never repay. “I don’t know whether to be annoyed at
her for not paying, or annoyed at myself for paying” he
says. Either way, it has made for some tense conversations
with his sister over the years.
So what’s the answer?

A good rule of thumb mentioned by more than one of my
friends holds that if someone is so desperate that they
need to borrow from family and friends, then they’re
probably not a very good credit risk to begin with. So if
you’re going to lend money, says a colleague, “you have to
be OK knowing that you’re never getting it back.” His
philosophy is that “if you can afford to give the money,
then give it. Otherwise, don’t. Because, ultimately,
you’re just going to lose your friend or your money.”
That’s precisely what Lisa, my friend in San Diego, doesn’t

want to happen. She still likes the woman who calls for
loans, and she doesn’t want the money – roughly $1,200 at
this point – to come between them.
Yet Lisa knows the money is coming between them. So the

only solution she sees is to “simply release the money as a
gift.” Thus, Lisa figures the best option is to just tell
her friend to forget the debt.
“No matter how many times a friend says they’ll repay you,”
Lisa says, “you just have to write off the loan for the
sake of the friendship.”
Or hope they never come asking.

Jeff Opdyke covers personal finance for The Wall Street Journal. Write to him
at [email protected]

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Repeat: Never Lend Money to a Friend

From: The Wall Street Journal

My friend Lisa recently posed a question that has long

Lisa, it seems, has a friend who has called several times

Still, whenever Lisa answers the phone and hears her

We all have heard the warnings about the dangers of lending

Sometimes you want to help. Sometimes you feel compelled

Lending money to friends, or borrowing from them, is rife

From that experience she realized that loans between

“It’s very uncomfortable,” my friend says. “I was so

As uncomfortable as it can be for the borrower, as a lender

In law school, Laura, a friend in New Mexico, lent a friend

“I was still angry that she didn’t seem to feel obligated

Family is no different. In fact, saying “no” can be

“You want to help your family because, well, because

With family, Carlos says, “you have to go into the loan

That’s not to say frustrations don’t simmer. Alex, a New

The one sometime exception to all this is when a parent

That doesn’t mean parent-child loans don’t have their own

So what’s the answer?

That’s precisely what Lisa, my friend in San Diego, doesn’t

Yet Lisa knows the money is coming between them. So the

Or hope they never come asking.

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