Why You Should Be Careful About Lending Money to Family and Friends

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 survey from the financial decision-making site Bankrate.

Personal Loans to Friends and Family Members Are Often Not Paid Back

According to Bankrate’s polling of nearly 2,300 U.S. adults:

• 54% of Americans have helped out a friend or family member by lending them cash with the expectation of being paid back.
• 19% 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: 44% of them said that their act of kindness ended with a “negative outcome.” In this case, negative outcomes took the forms of losing that money (38% of the time) or harming relationships with the borrower (23% of the time).

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

What Clark Says About Helping Out Friends and Family Financially

Money expert Clark Howard has 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 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 636-492-5275.