Lending Money to Friends and Family

Sooner or later, a friend or relative asks to borrow money. Saying yes can help someone you care about. But informal loans often go unpaid and can damage relationships.

Why it is tricky

• Unclear terms: when and how the loan will be repaid is often not discussed.
• Awkwardness: asking for repayment feels uncomfortable.
• Resentment: the lender may feel taken for granted; the borrower may feel judged.
• Social pressure: in close families and communities, refusing can feel impossible.

Questions to ask yourself

• Can I afford to lose this money? A useful rule is to lend only what you could manage without if it is never repaid.
• Is this a one-time need or a pattern?
• Would a gift be better? Sometimes giving a smaller amount as a gift avoids the tension of a loan.
• Is there a better option? Perhaps you can help them find a scheme, negotiate with a lender or make a budget.

If you lend

• Agree terms clearly: the amount, repayment schedule and what happens if they cannot pay.
• Write it down: a simple note or message, especially for larger amounts.
• Use digital transfers, which create a record.
• Be prepared to be flexible if their situation genuinely worsens.

If you say no

It is fine to decline. You can be kind and clear: “I care about you, but I cannot lend money right now.” Offering other help, such as time or advice, shows you still care.

Standing surety

Being a guarantor or co-signer on someone else’s loan is also a risk. If they fail to pay, the lender can demand payment from you, and your credit score may suffer.