Whenever I counsel anyone who talks about making a loan to or taking a loan from a friend or family member, I usually tell them that it’s a bad idea. It can very easily ruin your relationship with that person, even if they do pay you back.
Making loans to friends or family can definitely cause a lot of stress; and there may even be some tension that unintentionally gets built into the relationship. This is especially true if the borrower has trouble making some of the payments or if they don’t seem to take their obligation seriously, because of the closeness of your relationship.
Another thing that can happen is that the lender begins to scrutinize every purchase that the borrower makes. For instance, if you had to borrow some money from your brother, and then (while the loan is still outstanding) you ask him to help you set up your new flat-screen tv or expensive computer, he might begin to wonder why you didn’t use that money to pay him back completely!
I’ve seen this happen even when the borrower is making all of the payments on time! The high-end electronics example may be a little extreme, but it can happen with buying an article of clothing or even just eating out. The point is, it’s hard to know that these feelings will creep up until you are actually in this situation.
This, plus a number of other reasons, is why I try to avoid lending money to a friend or family member, even it proves to be the best loan available for them.
Because of what he was dealing with, and also his financial trouble in the past, there was no way that he could qualify for a great personal loan from a bank. I recently wrote on my other website about our friend getting into some financial trouble because the deferred payments were due on his car loan. I also told you how he was able to get out of the mess.
{Find out what the bible says about cosigning for a loan!}
He called me up and asked if he could borrow money from me, and that he should be able to pay it all back within a couple of weeks. I called my wife and told her the situation and we agreed to give him the loan. Here are the main reasons why we decided to go against my normal recommendation:
Why We Chose To Make A Loan To A Friend
He had a plan to pay us back – He looked over his income and expenses for the next few weeks, and determined that he would be able to repay us within a month. I was impressed that he didn’t just make a unrealistic promise out of desperation.
He has recently made financial sacrifices – He is selling a car that he loves and he also moved to another state in order to pay cheaper rent.
He is trying to get his finances in order – I met with his girlfriend earlier this year in order to help her get her finances (and she has taken care of a lot of things so far), and he has asked me to sit down with him as well.
He realizes that his situation is his own fault – The remorse that he is showing over his situation is not just based on not wanting to deal with adversity, but it comes from an understanding that his poor financial decisions are to blame. This is what is fueling his desire to make serious changes and become financial responsible!
It was a real need – He needed the money in order to pay his rent (our loan covered a portion…he had the rest). To me, that’s important enough to at least consider going against my general advice.
We had the money in our emergency fund – Since we have an emergency fund, we were able to give him the loan without reaching into our checking account, or wrecking our budget for the month.
It won’t destroy us financially if he is unable to pay us back – Proverbs 19:17 tells us…”One who is gracious to a poor man lends to the Lord, and He will repay him for his good deed.” Even if he isn’t able to pay us back, we will not hold it against him (we would just need to communicate). We really wanted to bless him in this situation, and ultimately, our repayment will come from the Lord!
We knew that it was the best loan for him – He may have been able to get a payday loan or find some other way of getting the money, but we didn’t want him to be forced to do something that would have made his situation worse.
As you can see, even though I would normally counsel against extending a loan to a friend or family member, there are some cases where we will do so. However, a lot of things have to line up in order for that to happen. It took a lot of consideration and evaluation, but in the end, I think we made the right choice.
photo credit: Freedigitalphotos.net
Reader Questions
- Have you ever given a loan to someone close to you? If so, how did it turn out?
- Have you ever received a loan from a friend or family member? If so, did you feel a greater sense of obligation toward them (as compared to a bank) or less?
