You get a phone call and it's your friend asking for money. What do you do? Depending on why this person needs cash, you might write a check or go to the ATM with no hesitation. But before lending money to a friend, you need to consider possible consequences of your decision. Some money experts warn against mixing friendship with money. But if your friend needs help, what other choice do you have? Ultimately, it's your decision. However, here are seven possible outcomes of lending money to friends.
Even if your friend promises to repay the money, there's always a chance that you'll never see a dime from this loan. Not necessarily because your friend doesn't want to pay, but because he can't pay. So you have to ask yourself this question, am I okay if this person never pays back the money?
There's also a chance that you'll need the money before your friend is able to repay. As a rule of thumb, never lend money you can't afford to lose. So if your friend asks to borrow $100, and all your money is for bills, this isn't the time to offer help. If you need this money for your rent or car payment, and your friend is unable to repay in time, you might be late on your bills and deal with late fees.
If your friend never makes an attempt to repay the money, it can slowly drive a wedge in the relationship. On one hand, you need your money. But on the other hand, you're uncomfortable bringing up the subject. And if you're upset about the situation, this can trigger an argument or create tension in the relationship. Before lending money, consider whether it's worth risking the relationship.
If you lend a friend money, she may come back and ask for more. I know firsthand that giving someone a small loan can start a pattern that's hard to break. It's normal to want to help our friends, but you're not their personal ATM machine. Whether you have extra money to give or not, friends shouldn't think it's okay to ask for money every time they're caught in a tight spot.
In a different twist of events, your friend might mention to others how you helped him through a situation. And unfortunately, others may get the idea to ask you for money, especially if you're doing better financially than your peers. If you lend money to a friend, make sure the agreement is confidential. Ask your friend not to reveal the source of his funds.
Don't be afraid to ask why your friend needs money. Too often, people borrow money and use the cash irresponsibly. For example, I knew someone who borrowed money to take a weekend trip to Atlantic City. There are good reasons to borrow money, and there are bad reasons. And before you take a gamble with your hard-earned cash, you deserve to know how the person plans to spend the money.
Although there are several possible negative outcomes of lending money to a friend, there's also a chance that the situation will end positively. Your friend might repay the money in a timely matter and your relationship never suffers.
The decision to help a friend financially is yours to make. However, you shouldn't make a decision on-the-spot. Consider your friend's pattern and whether he or she has a history of using money responsibly. Also, establish terms for the loan and put everything in writing. What are other possible outcomes of lending money to a friend?