We’ve talked budgeting, identity theft and college loans. Now onto a touchier topic — borrowing and lending between friends. A close pal needs help with a car down payment, or your well-to-do roommate offers to lend you cash for a trip. It’s a topic we’ve all pondered at one time another: is borrowing and lending cool between friends? Here are a few things to consider:
1. Will the money cover wants or needs?
If you’re trying to decide whether to loan a friend money, start by asking yourself if you want to fund what your friend is buying. If a friend who’s notoriously bad with money wants cash for a designer couch, a loan could just keep bad habits going. It’s a different story if a responsible friend has hit hard times and needs $100 for bills.
2. Can the borrower afford to pay it back?
You’ve been unemployed for a few months, and truthfully, you haven’t been looking for your next gig that hard. Meanwhile, you’ve decided a new laptop could help with your search. Should you hit up your successful roommate for a loan? A good rule of thumb is never to borrow what you don’t need, or what you can’t pay back ASAP.
3. Are you down with the terms?
So you’re about to lend someone some serious scrilla. Here are a few things you two should decide first: how much interest are they going to pay, if any? How are they going to make the payments? When will the loan be totally paid off? Setting the rules early is one way to help ensure there won’t be misunderstandings later.
4. Could a gift do the trick?
If a close friend is down on his luck and really needs help with the necessities, consider giving him the cash instead. If you can afford it, giving cash to a friend in need could save the friendship the stress of debt and paybacks.
5. Is there another way to help?
Whether you haven’t got the cash or you just aren’t cool with it, there may be other ways to help. For a friend struggling with finances, you can offer to help create a budget or make a plan for paying down debt. Helping with a resume, errands, or a meal may be just as helpful as cash in hand.
Needing to borrow money could be a red flag that you’re living beyond your means, or that you don’t have enough saved to cover you in hard times. If you don’t have money put away, use this Emergency Fund calculator to help you get started. It’s always a good time to start making financial choices. Find out more about getting out of debt and other smart financial choices at WhatsMyScore.org.
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