Rising Tide Blog

Is it ever a good idea to lend mates money?

Posted by Matt Hale

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It’s a situation which many of us have faced before, a close friend or family member asks to borrow a little extra cash to help get them out of a tricky situation or tide them over until payday… But should you reconsider handing over your hard-earned cash?

Unfortunately, the truth of the matter is that sometimes money and friends don’t mix – and giving out a loan without doing your due diligence can lead to some very real consequences and even end friendships!

So, before you say yes to giving your mates a short-term loan, it’s a good idea to consider the following points and make sure that both parties are on the same page.

Why do they need the loan?

First and foremost, you need to take a close look at why they’re asking for the loan in the first place. We all know that life can be unpredictable, and it can be tough to plan for all of life’s unexpected events.

If you believe they have a genuine and valid reason for asking to borrow the money, and they have a proven track record for being reasonable and reliable, you’re most likely going to be in the clear.

On the other hand, if you have noticed these kinds of requests becoming something of a habit, you may need to consider finding a polite way to decline their request.

If your friend is becoming a bit too familiar with asking to borrow money from you, they might be starting to depend on your support – which in the long run isn’t going to do either of you any favours.

When can they pay it back?

Another important question to ask is when your friend will be able to pay you back. People often overlook the importance of this and make their own assumptions about when the money will be returned to them, and here is where things tend to get murky.

Although it can be a little awkward, you need to have this discussion before you agree to any kind of arrangement. If not, your friend may make the assumption that you’re in no rush to have the money repaid, which (even if you aren’t!) ultimately isn’t fair on your end.

Make a clear plan as to when you can expect to have the money paid back and ensure they remain accountable. If you’re the kind of person who is too timid to follow up, it could be better to simply say no in the beginning. Otherwise, you’re likely to experience feelings of resentment, which can effectively make matters much worse.

Can you afford it?

Just because you have the cash spare, it doesn’t necessarily mean you can afford to lend it out. Perhaps you were relying on that cash to cushion any of your own unexpected expenses, or maybe you were planning to put it toward a particular use.

Be honest with yourself about it and don’t simply hand over the cash because you think you should. Leaving yourself short will only complicate things further and put additional strain on the terms of the loan.

A final thought

If you’ve given these points plenty of consideration and are still unsure what to do, it can be helpful to talk to an objective third party. At Rising Tide Financial Services, we can offer expert advice on all financial matters and even help you put in place a professional agreement to ensure the best outcome for all involved – a really good idea if you’re considering lending a large sum!

To find out more, contact the team at Rising Tide Financial Services today on (03) 9600 2124.