NDSU Extension Service - Ramsey County


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A Loan or a Friend?

A Loan or a Friend?

Shakespeare said, “Lend money to a friend and you lose both, money and friend.”  We’ve all been in the situation where we knew someone close to us – friend or family – was struggling financially.  Maybe the person asked for a loan; maybe we initiated the conversation.  Either way, money could potentially change hands and the terms of our relationship change forever.  What if someone asks you for a loan?  What type of response – and thinking process beforehand – is possible?

Decide if you can lend the money. Just because your friend is asking for a loan doesn't mean that you have to say yes. Think carefully about whether this is something you feel comfortable doing.  Solid advice from many financial experts is to never loan more than you can afford to lose.  Will loaning the money place your own finances in jeopardy?

How does your friend handle money?  Is this the first time for financial difficulty for your friend?   Is it an ongoing pattern?  Has she/he borrowed money from others?  Has it been repaid?

Can you agree on repayment terms?  Decide how much and how often payments are to be made, and then keep to that schedule. Discuss what happens if a payment is missed. Don’t allow yourself to become the “bad guy” in this arrangement.   Get it all in writing!

Just say no. If you can't afford or feel concerned about the friend's reliability, tell the friend that you are unable to give her a loan. If she is a true friend, she will respect and understand your decision

Let’s say, Jason borrows $100 from you and promises to pay it back within a week. At the end of the week, he tells you he will need another week because his car broke down. You agree. A week later, he tells you his hours at work have been cut and he can't pay yet. Meanwhile, Jason has plenty of money for beer, movies and video games. He isn't taking the debt seriously, and is just running you around, and the sooner you recognize it, the sooner you can deal with it.  If you really must have that money back, you may need to face the fact that you and Jason are going to have a serious discussion and maybe aren't going to be friends any more once you have your money back. Think carefully about how you want to handle this situation.  Or you may decide to consider that money gone and resume your friendship, resolving never to "loan" Jason any money in the future.

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