How to Lend Money to Loved Ones Without Wrecking Your Relationships

by Sophia Bera on February 22, 2017

Here’s a question that can negatively affect your relationship with a friend, relative, or significant other for years to come: Can I borrow some money?

When someone you care about needs financial help, you don’t want to leave them in the lurch. After all, these are the people you’d turn to in a crisis — shouldn’t you be there for them, too?

And in many cultures, it’s the norm for adult children to help support their parents and other family members. I’ve worked with clients who struggle to afford their own lives because they want to provide financial assistance to relatives. In these cases, I help find ways to work these expenses into their budgets, so they can provide that help while still being able to grow their savings and pay down debts.

Lending money to loved ones can result in resentment and hurt feelings, so if you’re going to do this, it’s best to ask yourself a few important questions first.

Can I Afford to Help?

If you’re unable to support yourself because a sizable chunk of your income is going toward a relative or friend’s expenses, this is unsustainable. It’s not fair for you to put off saving for your long-term goals to keep someone else afloat.

Take a moment to write out your monthly take-home income and all your regular expenses (things like rent/mortgage payments, utility bills, student loan payments, and grocery bills). Whatever money is left after you’ve paid for needed expenses, built up a cash cushion for emergencies, and set something aside for long-term goals is potentially available to lend to a loved one. If you carefully examine where your money goes, you might be able to free up an amount you feel comfortable giving away.

What Are My Expectations for Repayment?

Your family or friends might try and ease the blow of asking for money by assuring you that it’s a loan and they’ll pay you back. And since you know them so well, you don’t work out any sort of formal repayment agreement.

I hate to be the bearer of bad news, but…you might not ever see that money again. It’s not because your friend or relative doesn’t love and respect you, and it’s not because they don’t fully intend to pay you back. They just don’t face the same consequences from you as they would from a bank, so it’s that much easier to let repayments slide.

My advice is to give money as a gift instead of a loan.

You might not be able to give as much, but at least you can agree to an amount you can afford, while your loved one can rest easy knowing they don’t owe you money back. This can go a long way in keeping your relationship intact.

If the money you give them is a loan and you expect repayment, you can easily create a loan agreement document online that spells out a repayment schedule.

If you’re loaning a very large sum, like for a down payment on a home, look into family loan agreements. Create legal documents for these loans, have a lawyer look over them, and get the documents notarized. This process will allow you to take legal action if the person you lent money to fails to repay you.

Obviously, having to take legal action against a friend or relative is a recipe for relationship disaster. This is why gifting an amount you can comfortably afford can avoid a lot of strife.

Do I Get a Say in How the Money Is Used?

It’s hard to give away money under the assumption that it’s literally to keep the lights on at your loved one’s house, only to find out they just booked a lavish vacation.

When you lend or gift money, does that give you any control over how it’s spent?

In a word: nope. One adult simply can’t dictate how another adult spends their money.

Here’s the control you do have: you can give them an amount that will pay for a specific expense. For example, you might decide to take your parents grocery shopping once a week, or agree to pay three months’ worth of a friend’s electric bill.

If you do want the money to go towards something very specific, then make the payment directly to that company rather than give the money to the friend. For example: if you’re paying for a semester of your sister’s school, then make the payment directly to the school.

How Can I Say No?

Another form of control you have over the situation? Saying no! Listen, I know how guilty you might feel when you decide to turn down someone you love.

If this loved one has a pattern of asking for money, then bailing them out may actually be doing them more harm than good. Caretaking is a form of codependency and sometimes saving people from their own mistakes is actually hurting them more than helping them. (If this sounds like you, check out the book: Codependent No More.)

If helping someone else out creates a serious financial hardship for you, you owe it to yourself to say no. If you’ve helped a person out in the past and then saw them spend your hard-earned money frivolously, say no. If you believe that giving or loaning someone money enables them to continue bad or dangerous habits, say no.

This is how you start practicing self-care.

They might make you feel bad or even stop talking to you for awhile, but ultimately, you choose where your money goes. Here’s a sample script for when you want to turn down a request gently but firmly:

“Wow, it sounds like you’re in a tough spot. Unfortunately, I’m not in a good position to help you out financially right now. I wish I could help, and I’m always here if you need to talk.”

That’s it! Don’t justify it, and don’t list all of your expenses to them. If you know a resource that might be helpful for them, then pass it along. I often recommend the National Foundation for Credit Counseling (NFCC). They have trained debt counselors across the country to help people navigate through bankruptcy, debt management programs, and credit repair.

Letting money come between you and a loved one can lead to some relationship-ending fights. If a friend or relative approaches you for financial help, be honest with them in a way that keeps your budget, and boundaries, intact.