When your loved ones ask for help, your first instinct is probably to say yes, no matter the situation. No one wants to turn down a family member or friend in need, but constantly sacrificing your resources can become a dangerous cycle. This is especially true when it involves your finances.
Lending money to someone you care about can be tempting, but it’s often ill-advised. Squandered funds and unpaid loans can seriously damage your relationship, and it’s better to avoid the situation altogether. However, there will be times when you decide you need to help them out financially.
Whether it’s a request for a few dollars or a few thousand, you should set some boundaries when a family or friend asks to borrow money.
How Well Do You Know This Person?
If your sibling or child asks for money, you’ll probably be more willing to help than you would be with an old high school friend. The extent of your relationship with that person matters.
According to an article by Money Under 30, you should ask yourself three questions (and answer yes to at least two of them) before proceeding:
- Do I know this person’s middle name?
- Does he/she know mine?
- Have I seen this person in the last six months face-to-face?
If the individual doesn’t meet the qualifications you set, that doesn’t mean you have to give them the cold shoulder. Money Under 30 advised offering emotional support instead, which is just as valuable a digging into your savings account.
Tips for Handling a Loan Request
ABS-CBN recommended turning down requests to borrow money whenever possible; but if you feel obligated to help somehow, try the following tips.
Only give what you can.
Your loved one should appreciate anything you give them, so don’t pressure yourself to drain your bank account for their benefit; merely offer what you’re comfortable with, not an amount that will stress you out for the next few months.
Document the lend or sign a contract.
Just because you know this person doesn’t mean you shouldn’t treat the loan like you would with anyone else. Document the exact amount you’re lending; and if possible, create a legal contract for both parties to agree on and sign.
Keep the loan confidential.
You don’t want anyone spreading rumors about your generous money-giving habits. Before agreeing to help your friend or family member, make it clear that you expect it to stay between you two.
Help them get a formal loan.
Just because you aren’t the one handing money over doesn’t mean you can’t assist your loved one in securing a loan elsewhere. Help with research and documents, and express your care by offering your time rather than your finances.
Beware of Scams
Remember, the people you trust most might end up hurting you in the long run if you’re not careful. Before you lend money to anyone, run a public records search to check for arrests, bankruptcies or other red flags to weed out any ill-intentioned beggars.
Additionally, beware of scammers pretending to be your loved ones. If someone you know appears to be asking for money through an unusual channel (via email, for instance, when you rarely ever email them), confirm through a different method that it was really them asking for the money.