Reasons You Should Avoid a Friendship Loan

Reasons You Should Avoid a Friendship Loan

We all want to be good friends. However, agreeing to a friendship loan usually comes with a slew of problems. Below are five reasons to decline when your friend asks for a loan.

1. Lending money to a friend could damage your relationship.

Lending money to a friend could damage the friendship if the loan proves to be unsuccessful. The same goes for cosigning. Once you become contractually involved, any friendship loan that goes bad will be your responsibility.

After lending cash to a friend or family member, 21% say their relationship with the borrower failed. It’s a sad statistic, and you shouldn’t take that risk.

2. It’s hard to keep timelines.

When friends make arrangements with money, the process is informal. It becomes easy to overlook details, such as the intended time for payback. Even if you do set a timeline, it could be hard to enforce. Lenders have debt collection procedures and lawyers on their side. The average person does not. Before lending money, ask yourself if it’s worth the hassle.

3. Others probably declined your friend first.

Chances are, your friend went to others before going to you. Financial institutions review a person’s income, credit score, and existing debt before they decide on a loan. If your friend was previously declined, you should watch out. They may not have the right resources to pay you back.

4. Your friend won’t learn how to manage their money.

Enabling your friend, by loaning them money, could be the start of a bad cycle. Instead, help your friend establish a budget to work out their financial situations. Show you care by sharing your experiences with money. Furthermore, explain what worked for you and what didn’t. Never underestimate the value of first-hand advice. Understanding finances is essential to proper wealth management.

5. Your money is being used for a loan but it’s not collecting interest.

The money you loan to a friend becomes inaccessible. Additionally, it does not collect interest. When it comes time to review your assets, your accounts will appear smaller than they are. Investors keep return slips to pad their portfolio. Conducting a friend-to-friend loan does not allow for the same process.

Friendship loan thoughts and suggestions

In conclusion, if a friend asks for money, you should say no. Even if you feel emotional about the subject, try to remember the facts. Declining a friendship loan helps both parties, especially in regards to keeping the friendship alive.

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