4 Tips to Avoid the Pitfalls of Loaning to your Best Friend.
But what about situations when there is no one else to turn to? You’re desperate for money and your best friend offers their assistance. Can you afford to turn him or her down? Or what about the reverse – one of your closet friends comes to you with a financial problem and asks for your assistance because they have no other options? Would you feel right turning them away? How can you avoid falling into the pitfalls of mixing friendship and money as either the lender or the borrower? Here are a few tips on how to approach a loaning situation between friends.
Eliminate All Other Options
Before you accept money from a friend or offer money to a friend, make sure that there aren’t any other options you can pursue. Maybe one bank has turned you down, but have you really tried all of them? Is there another money lending companies that will work for your situation? Have you cut back your expenses to the absolute minimum or are there some non-essential items that you can do without? One of the best things to do is sit down and figure out a monthly budget. Write down the amount of money you have coming in and then subtract only those things that are absolutely essential for your survival. You might find more money that you thought you had just because you took the time to map out your monthly spending. The most important things to keep in mind is that borrowing from friends should be your last option, not your first. If you can get it from someone or somewhere else, then you should.
Treat it Like the Business Arrangement it is
What most people fail to do is treat this kind of loan like the business arrangement it is. You must outline in writing the amount being borrowed, the time frame for repayment and the amount of interest (if any) that will be included in the repayment. If you do not have a solid agreement like this in place, it is far too easy to get complacent about the situation.
Be Wise in Your Spending After Borrowing Money from a Friend
This may seem like an obvious point, but you’d be surprised how much of a problem this can become. Most friends don’t mind lending the money and helping someone out, but it can be very aggravating to believe that money is being misspent. Put yourself in the lender’s position. Just say you lend money to your best friend, Sarah, to help her pay off her credit card debt. If after lending her the money, you see her spending money on non-essential items like cosmetics or shoes instead of increasing her payments back to you, wouldn’t you be a little upset? If you’ve borrowed money from anyone – be it a bank or a friend – your first priority is to pay that money back. There will still be plenty of time for life’s little pleasures and luxuries once that debt is settled. And if your the lender, don’t let your frustration build up – make your feelings heard and let your friend know in the nicest way possible that you need your money back as soon as they can spare it.
Pay it back!
No matter how long it takes, you need to pay the money back. If it takes longer than you anticipated, then it is important to talk to your friend and explain the circumstances. Most people will understand if there are good reasons for the delay. If there is a rupture or end to the friendship before all the money is paid back, it is still important that all of the money be returned. There is no way to salvage the friendship or your good name if you do not settle your debts.
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