In this article, our Hector the Collector dept collection Agency we talk about whether or not it’s a good idea to lend money to friends.

You have a friend who is in dire straits and has come to you and asked to borrow money from you. This is a tricky situation to be in, because as much as you would love to help your friend, you are also at risk of never getting your money back.

Borrowing money is as simple as using internet banking or an payment application. However, the problems normally start when re-payment needs to take place. 

Studies conducted in America show that more than half of consumers have lost a friendship due to money owed.

In addition, 77% of Americans believe that debt between friends is harmful to the friendship and more than 43% are willing to end the friendship with the person who owes them money.

However, if you would really like to help your friend, draft an acknowledgement of debt, have it signed and witnessed by both parties indicating the amount borrowed and the repayment terms.

The economic stressors

It’s not hard to understand why friendships can end because of money owed, given the overall economic crisis we find ourselves in.

To make matters worse, people are more likely to talk about almost any uncomfortable topic before they discuss money matters.

So, although many consumers are willing to lend money to their friends, the mere thought of asking for their money back causes unspeakable stress and tension.

As the unspoken tension builds, the result is that two people who were once close friends, become estranged.

Should I lend money to my friend?

So, the moment comes when your friend approaches you and asks you to lend him or her money. The first thing you need to do is weigh up the pros and cons.

Bear in mind, that sadly there are generally more cons than pros in this situation. However, use your discretion and make a decision based on the possible outcomes.

The following are possible outcomes that you should take into consideration:

• No matter how much you need it, you may never get your money back. The fact that your friend is loaning money in the first place, indicates that he or she does not have the capacity to pay you back. Invariably, you are at risk of either losing the money or losing the friendship. Ask yourself if saying no is a better option.
• You risk running a bad credit history. This is especially true in cases where you loan your friend large amounts of money. Should you not get the money back, you may begin struggling to maintain your financial obligations.
• You might run into a financial emergency. Being in a financial emergency and not having the money to pay your way out of it is extremely stressful. The chances of getting your money back from your friend during this time is minimal. You will be forced to look for a loan of some sort, landing you up in further debt.

How to lend money legally

Firstly, should you decide to lend money to your friend in need, be sure to never lend more than you are prepared to lose.

However, this doesn’t mean that you shouldn’t ask for your money back. It’s not a gift, it’s a loan.

Secondly, get legal protection – especially for larger amounts. A written, signed and dated agreement is considered a legally binding document by the court. Get two witnesses to co-sign – this will make it as legal as possible.

A verbal agreement is not enough to hold in court.