Personal Loands and Lending Money To Friends And Family Without Ending The Relationship
By admin on Jun 16, 2009 in Family & Finance
When my wife and I first moved to Los Angeles we didn’t have a pot to …..eh……..cook with. Like many people,we had no choice. We had to borrow money from our friends to get started.
We both worked very hard and fortunately, we were able to pay everyone back within 6 months. A few years later, one of the friends who helped us at that time, asked us to lend him $3000.
My wife and I thought that we’d probably never see the money back. But felt obligated to return the favor. Can you turn someone down who needs your help and who helped you?
We talked to our friend Lenny and set up a comfortable payment plan.
In a shocking development Len actually made those payments……for about 3 months. After that, he stopped making the payments and didn’t return our calls.
The amount he borrowed was significant but it wasn’t enough to put us out in the cold. His behavior, on the other hand, put a frost on our friendship that has never thawed.
I see this happening all the time…..don’t you?
What could my wife and I have done differently in order to have preserved our relationship? Anything?
Here are some options I’ve come up with:
1. Since we knew from the get-go Len wouldn’t likely pay us back, we should have been honest. We should have either given him the money as a gift or not given him the money at all.
This would have been difficult to do for two reasons:
a. Our last name wasn’t Gates….we couldn’t afford a $3000 gift.
b. We just couldn’t bring ourselves to refuse Len after he helped us.
2. We could have discussed our fears from the get-go.
Since we knew that Len would have difficulties paying us back – even under the very relaxed repayment plan – we could have discussed this issue form the start. I think this step would have relived the pressure and possibly allowed us to salvage the friendship.
3. We could have asked for collateral.
Again, this one would have been difficult..but doable. We may have gotten our money but if we would have seized his property the relationship would have ended anyway.
4. We could have told Lenny that we have a “No Loans To Friends” policy.
This would have been super hypocritical because we violated that policy when we asked him for money years before.
Even though my wife and I made the loan never really expecting to see the money back, it hurt. Moreover, Len probably felt ashamed of himself. He found excuses to separate himself from us even though we told him that we had forgotten about the entire thing.
The best solution I’ve worked out is to never borrow money from friends again. This way, I can invoke the “no loans to friends” policy. Would this approach work for you?
My sense is that even if the the person who borrows money from you pays you back, debt between friends sets up a weird dynamic that is very hard to survive. Somehow, the relationship is never the same.
Have you ever found yourself in a similar situation? Have you felt obligated to loan money to someone knowing full well you’d never see that cash again? What impact did it have on the relationship?
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17 Comment(s)
By My Journey on Jun 16, 2009 | Reply
Neal,
You could have used an online service (I don’t have the links on me but I think it is virgin Money) whereby you fund his loan, but after that it is out of your hands if a collection agency or similar entity goes after him.
This way you are playing the good guy, while performing good CYA methods.
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By Neal Frankle on Jun 16, 2009 | Reply
Wow…. I didn’t even know about this. Of course, I don’t know if such a company existing when this happened between my “friend” and I but this is great information MJ. Thx
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By Barb on Jun 16, 2009 | Reply
I have a number of friends that have the “no lending, period” perspective, after having been burned a few times in the past.
Recently, I loaned a small amount ($300) to very close friends that are struggling right now, with the idea that they can pay me back what little they can when they can. And if they never can, that’s ok, too (they were uncomfortable with me making it a “gift” outright).
I never lend money that I “MUST” get back (kind of like not gambling if you can’t afford to lose it all). I’ve found that if the relationship is a close one on sound footing, sometimes the money owed can be paid back in other ways (dog or house or baby-sitting, physical help with house projects like building a fence or deck, etc.)
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By Neal on Jun 16, 2009 | Reply
Barb….a great suggestion. It never occurred to me to suggest that my friend could have worked the debt off….. DOH!
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By SJ on Jun 16, 2009 | Reply
I haven’t loaned any substantial money to any of my friends. I think there’s a select few that I would feel comfy loaning money to… but at the same time I think I’d be fine just gifting it to them.
I think I’ll just attempt the no loaning policy tho
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By Neal on Jun 16, 2009 | Reply
SJ’s idea is pretty compelling……
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By chuck on Jun 16, 2009 | Reply
Wow, what a dilemma.
At one time, when I was in deep financial trouble, a good friend offered to loan…maybe actually he said GIVE…me money. I turned it down, because I think the answer to your question is no, you can’t lend, borrow, give or take money from a friend without it hurting the relationship. Just knowing I had a friend like that, however, was a great boost, and I will never forget the offer, but I’m sure glad I turned it down.
On the other hand, I did give money, I think it was $3000, to a relative in need. He didn’t ask for it, but my wife and I offered it because we knew he needed it. He paid it back in a very short period of time.
I guess you have to write it off, but Len sure has some bad karma to work off. I think the idea of work for $$ is a great idea. I really appreciate the questions you pose, and the answers your readers supply.
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By Monevator on Jun 18, 2009 | Reply
Very true words. I’ve seen the same situation happen when I’ve got involved in minor business work for friends. Invoices that never got paid, and some sort of feeling that despite agreeing a fee and it being my daily occupation, it didn’t need to be paid anyway.
The sums involved were much less than yours, but the friendship still floundered on the rocks. I felt sort of used I guess.
Very tricky territory.
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Neal Reply:
June 18th, 2009 at 6:10 am
Another excellent point I hadn’t even considered. It seems like it’s not the amount involved so much as the way the exchange is handled that creates the friction.
Thanks M!
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By McLaughlin on Jun 22, 2009 | Reply
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all: to thine own self be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.
William Shakespeare, “Hamlet”, Act 1 scene 3
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By Evan on Jun 23, 2009 | Reply
Yep. I’ve loaned money and had it not repaid. The relationship survived.
I guess it all comes down to the kind of relationship that it is. I find it sad that some relationships can’t survive these kinds of things – but it doesn’t help to pretend that they can if they can’t.
Friends are meant to help each other I think. I would like for money to not dictate to us the terms of our friendships. Unfortunately I think that sometimes it does.
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By Julio on Jun 23, 2009 | Reply
The “no loaning policy” is the way to go. Don’t think I would be able to mind my own business if I see the recipient of my loan squander it and that is not a position I would want to put myself into.
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By Neal on Jun 23, 2009 | Reply
Evan,
Your story is inspiring to me – probably a function of the way you approach your friends and it’s admirable.
I agree that friends are meant to help each other…but they are also meant to be honest and responsible to each other. Depending on the situation, I think the relationship could survive. In my case, I found out later that my friend had spent money supporting an addiction rather than his family or paying me back. That was it for me.
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By Bible Money Matters on Jun 23, 2009 | Reply
I think when you lend money it automatically creates a power relationship – there’s a bible verse that says the borrower is slave to the lender – and this is really true. When you borrow you are indebted to the person you have borrowed from, and the dynamics of the relationship change. It’s better to give money as an outright gift, or not to lend at all. Personally, i don’t lend to friends or family. If I do give them money, it’ll be as a gift with on strings.
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By aby Mathew on Jun 30, 2009 | Reply
As the great Warren Buffet says
” You should never give more than what you can afford to lose”
” Never put all eggs in one basket”
” Never test deep waters with both feet”
” Nobody but YOU can manage YOUR money better than others,
If you get 1000% returns on you money , just think yourself as an ‘early bird’ in a huge PONZI scheme”
” There is nothing like free money, Even if you win a lottery of 100 billion $, you still have to buy the ticket”
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By MTSC on Sep 14, 2009 | Reply
Hi I just wrote a post about this today as well. My friend asked for $10,000. I said no. And the friendship survived.
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By Neal on Sep 14, 2009 | Reply
MTSC,
How did you do it? What is your secret? I’m going over to check out your post right now.
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By Geno on Feb 4, 2010 | Reply
Great post, sorry to hear about others negative, and some positive experiences.
One of the most important aspects of borrowing and lending with friends and family is to protect the relationship.
The easiest way to protect the relationship is to increase the likelihood of borrower repayment.
The most successful way to accomplish this is by (1) ensuring both parties agree to the terms of the loan, (2) getting everything in writing, and (3) receiving assistance from a 3rd party.
We’ve started http://www.LendFriend.me to meet this exact need, hopefully we can help you also.
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