There are always risks involved when lending money, especially if the one borrowing from you is a member of your family or one of your friends. Compared to banks or private lending institutions that can chase after borrowers’ assets or sue them for payment default, people who lend money to friends and family usually do it out of goodwill and do not put it in writing making it difficult to take back the money they lent.
People who lend money to family and friends are almost always put in a tight spot in choosing between letting it slide or filing a complaint which will eventually ruin their relationship with the borrower.
Types of Borrowers
Mr. Righteous
This is the type of person who always pays up. He doesn’t want to ruin his reputation as well as your relationship. He is a man of his words. When he says he’ll pay you in two weeks, expect to get your money back in that time frame. Although there are times when finances are tight and he’ll need to move the payment date, he still has every intention of paying you back and not running away.
The Bandit
Their sole purpose is to scam you. They have no intention of ever paying you back. They don’t care whether you’re friends or not as long as they get the money they need. They’d even lie and use all kinds of excuses. They’ll promise to pay you back but after some time they’d start ghosting you, some even block you on social media. Lending money to these types of people would be a huge pain and a complete hassle as the only way for you to get your money back is by filing a complaint in court.
Best Actor
This one is sort of similar to the bandit, but to a lesser extent. They do need the money and they do want to pay you back but couldn’t because they’re more focused on other things. Most of the time they’d spend money on their wants rather than prioritizing paying back what they owe.
You’d see them posting about their vacation or the new things they bought and then you’d start to wonder when they’d pay you back. When you ask them about it they’ll give you all sorts of excuses and promise to return the money at a certain date. Then the cycle continues, until one day you’re the one who gives up and just doesn’t bother asking anymore. They’d forget about it, and when you see each other again they’d act as if nothing happened.
What Will Borrowers Lose if They Don’t Pay Up?
Lenders aren’t the only ones who lose in this situation, borrowers who refuse to pay up lose something too.
Damaged relationship
As I’ve mentioned earlier, lending money to friends or family always has risks involved and one of them is a damaged relationship. When a borrower defaults on their payment, they tend to lose the trust of that lender and may jeopardize their relationship making things awkward between them.
If the borrower prioritizes spending money on non-essential things like a new gadget or going on vacations but keeps moving the repayment date or avoids paying at all, then the lender will start resenting him for it especially when they need to use the money themselves.
Lost integrity
Borrower loses their integrity when they start avoiding their financial obligation towards a lender such as making up excuses to move the repayment date or avoiding any means of communication. Excuses are only acceptable if borrowers are really in a tight financial situation, but doing so just to refrain from paying back the money they owe is not.
Not only can they be held legally liable, but when the time comes that they’re in dire need of money, let’s say to pay their medical bills or pay for school tuition, they’ll have fewer people to turn to because no one would believe them anymore.
How to Lend the Smart Way
It’s okay to try to be safe when lending money to people, it is your money after all. Being wise with your finances helps you to be financially afloat and avoid any unnecessary stress. Below are some smart ways of lending money that you can follow.
Only lend to people you trust
Be cautious when lending money and only lend to those you trust even if they’re your friends or family. Don’t be pressured just because you know them. You also need to protect yourself. Only lend to people who have a proven history of paying back the money they owe.
At times, you’ll hear stories about that person’s borrowing habits. If they have a history of running away from their financial obligations, avoid lending money to that person as much as possible.
Only lend what you can afford to lose
It will put a strain on your financial situation if you lend money more than you can afford. Ask yourself if it will affect your finances before deciding on lending money to friends or family. By doing so, you wouldn’t mind if that person fails to pay you back. Of course, it would still ruin your relationship with them but at least you’ve cut your other possible losses.
Get it on writing
Getting it in writing would be an awkward situation, but a wise move to ensure that you have documents proving that you lent money to them and can be used in court in case of default. Of course, it still depends on the situation. If they only borrowed a small amount, getting it in writing would be a turnoff. But if it’s a large amount then these documents would be your best and safest choice.
Evaluate the person and the situation
You need to have sets of questions to evaluate the person and the situation before deciding to lend money to them. Some of these questions are:
- Has this person borrowed money from me before and was I paid back in a prompt manner?
- Why does he need to borrow money?
- Does he have a history of running from his financial obligations?
Final thoughts
Some people aren’t responsible enough in life, that’s why we need to be careful in lending money to friends and family. You cannot expect a borrower without integrity to pay the money they owe you. Although this is a fact, there are still people who are in dire need of money to survive.
Lending money to these people is okay especially if you have more than enough, but don’t expect they’d be able to pay you back immediately or at all. If possible, you can choose to donate money to them instead of lending it, although it’s not always the case. Some people have pride and the thought of needing to borrow money is already hard enough. Let them be the first ones to reach out. You can help them out in other ways, like inviting them for dinner, or referring them to other people you know if they’re currently unemployed.
The bottom line is to always be careful and wise in dealing with these matters to protect yourself as well.
Do you have some tips to share? Any experiences or lessons in life that you think could help others? Feel free to leave a comment below or reach us through our contact page. You can also follow Striving Millennial on Facebook, Twitter, Instagram, and Pinterest for other posts and updates.
