Seven simple rules for lending money to family

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There’s an old rule about lending money to a family member. And it goes kind of like, well, how do we put this gently? ‘Don’t do it’. Yes, that’s it.

Now, it’s a general rule. There are plenty of examples of happy families after one member has lent the other substantial amounts of money to help them with a major purchase or to get them out of a jam. It’s just that probably more often than not, lending money to friends or family can turn an otherwise amicable relationship into a complete and utter shambles. That’s the nice way of saying it.

Now, that’s not to say you should ever feel obliged to lend money to anyone. Obviously, you have the right to say no. And if you do say no, that decision should be respected, especially if you have a good reason or explain why you don’t want to or can’t lend money.

However, if you do find yourself in the position of either a) being able to lend a friend or family member some money or b) feeling as if you have no choice, as a decent and moral human being, to lend a loved one some money, then here are the seven rules of thumb to follow to help keep your relationship positive.

1. Don’t lend money you can’t afford to lose
It’s already a huge gamble lending loved ones money, made even bigger if you’re not prepared to lose that money. If you feel unsure or anxious about this situation, you’re better off backing out sooner than later. If you can afford to not be paid back, then you have less riding on it, and you may feel more at ease about potentially giving that money away.

2. Make sure it won’t put you out too much
If you have bills to pay, or lending money to someone else will put your own living situation in peril (like, say, you can’t make your mortgage repayments), then you best check your financial situation, including leaving a safety net for any emergencies, to make sure you can go without the money you’ll lend. Having to ask for money back before the recipient can pay it back is a sure path towards animosity.

3. Ask why they need the money
Okay, you can afford to lend some money. The next step is to make sure you’re not being used as a bank to fund bad habits or poor decisions. Your loan should be seen as an investment, so take on the position of an investor and make sure your money is in good hands. You have the right to know where your money is going and knowing such will hopefully improve your chances of seeing it returned.

4. Weigh up how it will affect your relationship
If you say yes, do you risk being asked again, and again? Or do you risk becoming to ‘go-to’ for any other family member needing a helping hand? Will lending the money diminish your respect for this person? If they couldn’t pay you back on time, or at all, would it ruin your relationship? These are questions you should answer before handing over any cash.

5. Get it in writing
If you say yes, then type up an email or letter and have the terms of the loan clearly defined, as well as any deadlines for repayments, how often and how it should be repaid and any interest (if any). The details in a verbal agreement can be quickly forgotten, whether accidentally or conveniently. Cover your bases by having it in writing.

6. Don’t backslide on your terms
If the recipient misses a repayment, make sure they pay you as soon as possible. Treat your money as a lender would treat a loan. If they can’t make a cash payment, take it out in other ways, such as labour or something they really don’t want to be doing or something they really don’t want to give up. It may make them think twice about missing another payment.

7. Is there another way?
Maybe lending them money isn’t the answer. Or maybe you just don’t have it to lend. In that case, is there another way you can help? Maybe babysitting your grandchildren instead of having them in childcare or day care. Or maybe having the kids over for a meal – or cooking meals for them – a couple of nights a week could help ease pressure on their purse strings. Maybe you know someone who could use a little help around their home and are prepared to pay for it. There are more ways to help someone out than with money, you may have to get creative in how you can help.

Have you ever lent a family member money? How did you ensure your relationship stayed amicable? Or did it turn sour? What tips can you give our members?

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Written by Leon Della Bosca

Leon Della Bosca is a voracious reader who loves words. You'll often find him spending time in galleries, writing, designing, painting, drawing, or photographing and documenting street art. He has a publishing and graphic design background and loves movies and music, but then, who doesn’t?



Total Comments: 9
  1. 0

    This is a useful resource:

  2. 0

    never and have not been asked and probably will never be and my answer will be no anyway

  3. 0

    Nah – my kids do pretty well on their own. Family and I keep a wary distance, like two prizefighters circling in a ring…. and I don’t do close friends…

  4. 0

    Had my second wife’s son ( Vietnam) borrow money for a small business venture. After waiting a year for some recompense I emailed him that immediately I would charge 6% compound interest and “inform” his mother of his actions which would have embarrassed both of them (and immediate family). Money repaid the next day. If you lend “friends” money the result is loss of the friendship….this happened twice to me.

  5. 0

    No, and no, and no. I leant my daughter some money to avoid a criminal fraud conviction, with a written agreement to repay. The day the first payment was due she advised she would not be paying anything back because ‘I owed her’. It has now been 18 years since we have seen or even spoken because she then said I needed to help give her a deposit for a house as she was about to become a single parent. Again I said no, so the ties were severed. I am totally reconciled with this. I am a single retiree, struggle enough to support myself. No doubt she’s counting the days to get hold of my will…she might be in for a surprise.

  6. 0

    Yes i have, gave money to sit off their home loans to both children, we have a wonderful relationship and hopefully nothing will ever happen but if it does our grandchildren will benefit either way. We have an agreement but really unless you go through legal channels nothing is ever guaranteed.

  7. 0

    Strangely I’m the other side of the equation. I asked my family for money when i was desparate, and initially they were helpful, then things went pearshaped. I had much better luck from wonderful friends, some of whom I was able to pay back, and some who said don’t worry about it. They were only small amounts of money. However I have never really gotten over how some family members treated me, especially the ones who were financially way better off than me, and would never have missed the money!

  8. 0

    Have not had the problem of being asked for a loan by either friends or our one and only child but my brother in the UK borrowed money from our mother for MOT testing cars for his business and never paid it back. He and his wife were not happy when she decided to come to Australia to join me, my husband and daughter and bring over all her money. This was in 1979 when she was 70.

  9. 0

    As you say it can be useful and honorably managed though. A friend of mine many years ago hit a serious hump and simply mentioned his dilemma to a friend and adviser of his. What today would be a couple hundred thousand was immediately offered with no strings attached, even with the comment that he should only pay it back if he could reasonably afford to do so. This got things back in order, was paid back within 2 years and my friend retired with very serious wealth. It goes without saying perhaps that they remained very good friends.

    Nice to have friends like that of course but really one was an excellent judge of character and the other, of excellent character.



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