Have you ever loaned money to a family member or friend? If so, were you paid back?
If you answered “yes” to the first question and “no” to the second one, you are not alone according to a new survey from financial decision-making site Bankrate.
Personal Loans to Friends and Family Members Are Often Not Paid Back
According Bankrate’s polling of nearly 2,500 U.S. adults:
- 60% of Americans have helped out a friend or family member by lending them cash with the expectation of being paid back
- 17% have let someone close to them borrow their credit card
- 21% have co-signed for a financial product like a loan or rental
People who lent money to a loved one probably regretted it nearly half of the time — 46% of them said that their act of kindness ended with a “negative outcome.” In this case, negative outcomes took the form of losing that money (37% of the time) and harmed relationships with the borrower (21% of the time).
Those who let a friend or family member borrow their credit card introduced a new possible negative outcome: 12% of those respondents say their credit scores suffered as a result.
When it comes to cosigning on a loan or a lease on a rental — as many parents do for their adult children — 21% of people who went down that path say their relationship with that person was damaged as a result and 20% reported credit score dings.
“I’d avoid lending cash and credit cards and co-signing,” says Ted Rossman, industry analyst at Bankrate. “All too often, these situations end poorly.”
What Clark Says About Helping Out Friends and Family Financially
Money expert Clark Howard doesn’t take such a hard line when it comes to giving your loved ones a lift when they need one, but he does have two rules about lending money to family and friends.
“One: Treat it as a one-time only thing,” he says. “And two: Treat any money you lend as a gift, rather than as a loan. That way if you do actually get paid back, it’s a happy surprise.”
Other ways you can help out someone in a tough spot include:
- Getting them on the right financial path by working with them on creating a budget
- Exposing them to other potential sources of cash like personal loans or different ways to make extra money
- Instead of loaning out your credit card, introduce them to the idea of a secured card
Have questions about helping out friends or family who need money? Call our Consumer Action Center at 404-892-8227. It’s free and volunteers are standing by to help Monday-Thursday 10am -7pm ET and Friday 10am-4pm ET.