How to Say No when Friends Ask to Borrow Money

How to Say “No” to Family or Friends Who Ask to Borrow Money

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In a recently updated article, I shared 5 simple rules to loan money to family and friends and maintain healthy relationships. Today, I want to share a deeply personal story of how I borrowed and loaned money to family and friends.

I’ve been a borrower and a lender with family and friends. Having been on both sides shaped my current thinking and actions when it comes to loaning money.

I’m the first to admit there are emotional and mental aspects of borrowing and loaning money. If you’re the borrower, you’re admitting to bad financial circumstances. In some way, you’ve swallowed your pride to ask for the loan and showing vulnerability. However, as the person who loans money, you’re put into a tough situation of needing the loan repaid and maintaining the relationship.

The incapable borrower and the misunderstood lender

When I was in my twenties, I was a financial disaster. I was living paycheck-to-paycheck, wracking up credit card bills, and maxing out my student loans. As a 20-year-old college student, I had a good-paying job but I never seemed to have enough money.

There was one particular situation where I asked a good friend for money. I needed to pay for my car insurance. And with no questions asked, he loaned $600, to be paid back in 30 days. I remember wanting to pay him back but I never seemed to have the money to do so.

Coincidently, I always found money to go out and be wasteful, but it was challenging to find money to pay back what I owed. Somehow I rationalize my friend’s loan was a bill and I had other more important bills due. The creditors wouldn’t understand my situation, but I believed my friend should understand my financial predicament. Because, you know, he’s my friend.

Well, months passed and I still hadn’t paid him back. I also did my best to avoid him. He never went chasing after me until he needed the money for Spring Break to Cancun. I remember how embarrassed I felt. I was ashamed of my avoidance and carelessness. Eventually, I did pay him back, months later than agreed, but right in time for Mexico.

From borrowing money to loaning money

A few years later, I found myself in better financial standing. And the roles were reversed, I was financially well to help family and friends. I experienced avoidance from friends who borrowed money from me. I also had a family member tell others I was worse than a debt collector. In one instance, I had a friend tell me I was greedy for wanting my money back since I looked like I was doing quite well. On all these occasions, I was in the wrong.

Here’s a reality I didn’t share with my borrowers: the money I loaned was money I couldn’t afford to lose. I was by no means financially independent. I just wanted to help friends out of stressful situations.

Having experienced the other side of the loaning money, I see what my friend back then may have observed. With the friends I lent money to, some were posting pictures of the vacations and shopping. One even posted buying $500 pair of sneakers while I was side hustling with paid online surveys and secret shops to make extra cash.

Should you loan money to friends or family?

People borrow money for a number of reasons. Sometimes it’s to pay for rent or food. Other times for something discretionary. And people loan money because they believe it will help.

I’ve seen the loans do some nasty things like destroy marriages, cut off sibling communications, and I’ve witnessed friends get into a physical fight.

It’s okay to lend money to anyone you choose. Just have the right mindset and the financial means to do so.

My golden rule is this:

Give money when I have it and when it makes financial sense, but never loan money with any expectations of repayment.

How to Respond to Family and Friends Who Ask to Borrow Money

Help keep a loved one safe

Determine the loan purpose. Your family or friends should respond honestly and not defensively. The latter can and do happen more often. Some people want your help with no questions asked. A good process is to determine if the situation is life-threatening.

I want to help my loved ones and keep them from experiencing unnecessary financial stress. Especially when they are actively working on improving their finances. If a friend’s life is in danger, however, I am going to do my best to help and offer resources.

And if you discover they are safe but under financial stress due to debt collectors, then share how two federal agencies are on their side. The Consumer Financial Protection Bureau and the Federal Trade Commission have portals to lodge complaints. These federal agencies follow through.

Make it an investment

Sometimes a friend needs a loan to help with a business idea. Analyze the request as if it was a business opportunity. Ask questions about the business plan, product, and revenue projections. If your friend is going into business, then he should be able to answer these questions. It’ll also help flush out his idea which can help with a future loan from a lender.

If the loan is for a business, then I consider two things such as supporting a friend to live a dream or investing in a solid business with growth potential.

Focus on financial knowledge

I’ve had friends who needed cash to pay for a moving violation or tickets. One such friend had two tickets for using a cell phone while driving that totaled $600. He didn’t have the money to pay and was afraid he’d lose his license.

In this situation, I wanted to help him but I could also be enabling his careless behavior. Instead, I offered him ways to earn money to pay off the violations. He told me how “having to work more” made him realize how he’d stop texting while driving.

Help create a savings habit

If you want to loan money to family or friends, then consider opening a secured loan for them. A secured loan is offered by banks and credit unions for people who may not otherwise be approved.

Follow these steps when someone asks for money:

  1. Help them get a secured loan for the amount needed
  2. Deposit the amount you’re loaning into the secured savings account
  3. Get the funds disbursed and given to your family or friend
  4. Have your family or friend repay back the loan to the financial institution
  5. Once repaid, the secured savings is released back to you

I helped a friend secure a $1,500 loan from a credit union. We opened a joint account and I made the deposit for the amount he needed. The credit union disbursed the loan amount to my friend. He made the minimum monthly payments and repaid the loan within 8 months (4 months early). After repayment, the security deposit was released back to me.

As an added benefit, not only did I help my friend with the cash he needed, it also improved his credit.

Sometimes just saying “no” is enough

I’ve learned when people have said “no” to me I found an alternative solution. In most instances, your family and friends will also find a different solution to their financial needs.

A few years ago, a friend asked to borrow money. I said “no” and inquired about his situation. He was way behind on all his bills and his debt was 3x more than his annual income. Having worked in the financial space for some time, I knew what he needed was to speak with a debt counselor or an attorney about options. When he heard “no” from me, it gave him time to reflect that borrowing money to pay for one month’s bills wasn’t going to solve the long term problem.

Now, it’s hard to say no to people we care about. So do it with empathy and understanding. Assure them you are not judging their situation. And if you want to help in some other way make it clear it won’t be financially. Keep yourself from lecturing or trying to solve their issues. Financial stress impacts our psychological state and being told what should have been done can only harm the relationship.

So, you’ve read my story of how I borrowed money from a friend and vice versa. What are your experiences?

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