Why you should be careful when lending money to family and friends

Have you ever lent money to a family member or friend? If so, have you been reimbursed?

If you answered “yes” to the first question and “no” to the second, you’re not alone, according to a survey from financial decision-making site Bankrate.

Personal loans to friends and family members often go unpaid

According to Bankrate’s survey of nearly 2,300 American adults:

  • 54% of Americans have helped a friend or family member by lending them money in the hope of being repaid
  • 19% let a loved one borrow their credit card
  • 21% have co-signed for a financial product like a loan or lease

People who lent money to a loved one probably regretted it almost half the time – 44% of them said their act of kindness ended with a “negative outcome”. In this case, the negative results took the form of losing that money (38% of the time) and damaging the relationship with the borrower (23% of the time).

Those who let a friend or family member borrow their credit card introduced a possible new negative outcome: 14% of these respondents say their credit score suffered.

What Clark Says About Helping Friends and Family Financially

Money expert Clark Howard has two rules about lending money to family and friends.

“One: treat it as one thing,” he says. “And second: treat the money you lend as a gift rather than a loan. That way, if you actually get reimbursed, it’s a happy surprise.

Here are some other ways to help someone in a difficult situation:

Do you have questions about helping friends or family in need of money? Call our Consumer Action Center at 636-492-5275.

Troy M. Hoffman