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Borrowing money kills friendships

Posted Sep 23 2009, 09:19 AM by Karen Datko
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This post comes from Nora Dunn at partner blog Wise Bread.

How many friendships have you lost (or almost lost) because of money? If money matters are a touchy subject to begin with, then how are we expected to navigate the murky waters of borrowing from friends?

We've all been there (on either side of the spectrum) before: A buddy asks you to spot him $20, but never seems to have the cash available to pay you back, or he continues to forget when he sees you. And when, months later, he buys a fourth round of beer in front of you without handing over the $20 that has been slowly eroding away at your sanity, you pop.

Your buddy has probably forgotten that he even owed you anything and immediately hands you the cash, but the damage has been done. Your friendship now faces trust and communication issues that may or may not be overcome.

Now, $20 is a fairly easy loan amount to forgive or forget about. But what if that $20 is $200, or even $2,000 or beyond? What tension will exist in the friendship as a result of an outstanding loan?

Borrowing from friends can bring to light a number of issues that, without the loan, would be relatively innocuous:

  • It highlights the financial inequalities between friends.
  • It creates a sense of obligation within the friendship.
  • It may not be taken as seriously (by either party) as a conventional loan.

Navigating the pitfalls

Is it possible to effect loans between friends without compromising the friendship? Here are a few questions for each party to ask to help determine if the loan proposal is a minefield or a walk in the park.

Questions for the lender:

  • Is the money in question a lot of money to you?
  • What else would you do with the money if you didn't lend it to your friend?
  • Why is your friend coming to you for the money and not somebody else (or the bank)?
  • Will you draft a formal loan agreement and charge interest?
  • How will you collect loan payments?
  • What will you do if your friend defaults?
  • How do you think the friendship will be affected both during and after the loan is in effect?

Questions for the borrower:

  • Why do you want money from this friend in particular?
  • Why can't you go through more conventional debt channels for the loan?
  • How exactly do you plan to repay the loan?
  • What will happen to the friendship if something unexpected takes place and you can't make a loan payment?
  • How will your life change as a result of this money being lent to you?
  • Is it worth possibly wrecking the friendship to borrow this money?
  • Do you think your friend will attach unnecessary strings to the loan?

Saying no

One of the reasons more friendships are killed by loans than is necessary is because it is easier to say yes than no to a friend. Your instinct may be telling you that this friend isn't reliable with money, but because he or she is a friend and wouldn't (intentionally) rip you off, you trust that it will all wash out in the end and save yourself the grief and stress of saying no to the loan request.

However, it is ultimately easier to face the temporary discomfort of saying no to an initial loan request than it is to have some of the tough conversations that ensue after things get hairy if you proceed with the loan. Most friends will understand a "no," even if they're initially unhappy with it.

Not asking

And if you are the friend in question who needs money and has few options other than friends, you could stand to save a lot of grief by simply not asking your friends for money. Even if you are disciplined with your money and making payments, the scope of the friendship will likely change as a result of a loan coming between you. In the same way that we don't like to have a friend cover the tab all the time when we go out (even if that friend is better off), invisible lines can be drawn in the sand that have a subtle yet profound effect on your relationship.

Have you lost a friendship because of money or a lending horror story? Conversely, have you had good experiences lending between friends -- and if so, what did you do to navigate the pitfalls?

Related reading at Wise Bread:

Balancing spending with savings: Being frugal but not miserly

How to use a gift calendar to track your gift spending

10 money lessons learned from my immigrant parents

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Comments

 

I have borrowed money from a friend and the thought of paying her back NEVER left my mind.  I was pained and embarrassed until I paid her, and did so as quickly as possible.  A "friend" does not forget that they owe another friend money.  I have lent money, sometime with the borrower paying me back the very next day (I can tell she also had that pained feeling until she paid back!) and I have lent money that was never paid back (this from someone who gave me their payment plan in the same breath as the request itself).  It is true, "neither a borrower nor a lender be".  If someone "forgets" to pay me back, its not so much that I need the money back, the issue is that the "friend" is not so much a friend after all and that hurts!

M in NM (Posted 09.23.09 10:10 AM ) Report Abuse

The same goes for family.

Jeffrey7500ontwitter (Posted 09.23.09 12:22 PM ) Report Abuse

I have a "friend" that I have bailed out thousands of dollars over the last 2 years with veryyyyyy slow payment back. I bailed her out again in May for $2500. Haven't received a penny yet and she is constantly going MIA for a month or so at a time. I'm being nice in the hopes of getting paid back, but once I am paid...I am done. It's ashame, we were really good friends. Never again will I bail out a friend. I worked hard to save up money in my "rainy day fund," and it's not my job to bail people out if they are stupid or lazy. People need to learn to live within their means and prepare for rainy days. I think that high schools should have to teach a full year of money management/life management classes, because I certainly never use the trig classes I took!

Madeline (Posted 09.23.09 1:10 PM ) Report Abuse

It's not the friends who are the problem.  Friends who need to borrow money usually need this on an occasional short-term basis and pay it back either in cash or with some other service, for instance, they buy next time.  

It's the relatives who feel entitled to borrow money because of a shared ancestry who very rarely seem to have any interest in paying it back.  And they have no guilt, either, about coming back and asking for more!

Arimathea (Posted 09.23.09 1:35 PM ) Report Abuse

In the past I have tried to help out friends, girlfriends, family, etc... only to have been disapointed over and over again on their abilities to make good on their debts. My wife and I have even went out on a limb to put a close friend into one of our rental properties. What a disaster. Our policy now is "Sorry, we're not a bank".

Steve G. (Posted 09.23.09 2:55 PM ) Report Abuse

My advice-

Never lend money.  If there is a need that you can meet financially (falls within your budget, you'd like to help, etc) then give it.  Don't expect it back.  If they pay you back, then great.  If they don't, it doesn't matter because you gifted it to them.  Let them know this as well.  If a friend asks for money, I either tell them I am not in a position to be able to give to them, or I give them what they ask for and let them know that they are not borrowing from me, but that it is a gift so that they don't feel the burden to pay it back.  This way, no hurt relationships.

T.O. (Posted 09.23.09 3:15 PM ) Report Abuse

We lent a friend 5,000 to help with a purchase of a home. They both worked and had good jobs. That was 3 years ago. They have never paid back one cent and lost the house. We will never ever lend money to anyone ever again! Hard lesson!

Arizona (Posted 09.23.09 3:16 PM ) Report Abuse

A close friend with poor credit asked me to co-sign a $70,000 school loan for a fairly well established helicopter school.  I turned him down sadly but firmly.  Less than one year later, the school had gone under and students were left with the full debt and no certification.  He thanked me for turning him down.

mich (Posted 09.23.09 4:25 PM ) Report Abuse

Arimathea - You do have a point both ways with Friends vs. Family.  No matter who it is - friends or family - they still feel they don't have to pay you back for some reason.  Like my Mother tells all her friends who CONSTANTLY ask to borrow money, "The Bank of (put your name here) is now closed for business."  Then you don't hear from them for like 2 months!  When it comes to borrowing money from ANYONE, I always tell people, "Be careful not to burn any bridges when you cross them cuz someday, you may need to cross that bridge again."  By sticking to that philosophy, I pay back everybody that I owe money to cuz I may have to ask for money again.  Thank goodness I haven't had to do that in a long time!

Coopty 14 (Posted 09.23.09 4:45 PM ) Report Abuse

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