How to say No when Friends or Family Ask to Borrow Money

How to Say “No” when Friends 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 of money to family and friends. Having been on both sides shaped my current thinking and actions when it comes to loaning money.

When I was 20 years old, 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 gather the money to do so.

I could always find money to go out and be wasteful, but it was challenging to find money to pay back what I owed. I always had another bill due. The creditors wouldn’t understand my situation, but I believed my friend would or should understand my financial predicament.

Well, months passed and I did my best to avoid him. Surprisingly, he never only asked for the money when we began planning a Spring Break getaway to Cancun. I remember how embarrassed I felt and ashamed of my actions. In the end, I did find the money to pay back the money he loaned.

From borrowing money to loaning money

A few years later, I found myself in better financial standing. I was now in the role of helping family and friends by lending money to them. But I was different than my friend. I expected to get repaid back and on-time. I would send reminders through email or text about the approaching deadline.

I realized that my friends who borrowed money avoided me. I also had a family member tell me I was worse than a debt collector. I even had someone tell me I was greedy cause it seemed I didn’t need the money. Somehow I was in the wrong for asking to be repaid.

The reality was that I loaned money I really couldn’t afford to lose. I wanted to help just like others helped me. But I also wasn’t financially secure at the time.

Now on the other side of the transaction, I see what my friend might have seen when I was 20 years old.

I noticed how my family and friends who I loaned money to were posting pics of their vacations or shopping sprees. They were buying $500 sneakers while I was doing paid online surveys and secret shops to make money.

I’m the first to admit there’s emotional and mental baggage when it comes to borrowing and loaning money. If you’re the borrower, you’re admitting to bad financial decisions. 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 money back for yourself and maintaining the relationship.

You never want to be seen as the incapable borrower or as the misunderstood lender.

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

No financial situation is unsolvable unless someone is threatening your life. And if it happens to be a debt collector doing so, then you have two federal agencies on your side, the Consumer Financial Protection Bureau and the Federal Trade Commission.

I don’t want anyone I care about goes through unnecessary financial stress that is impacting their wellbeing. Especially when they are actively working on improving their finances. If a friend’s life is in danger or being harrassed I am going to do my best to help and offer resources.

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 idea. 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 help him 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 live a dream or investing in 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 using a cell phone while driving violations 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 it’s not worth texting back.

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:

  • Help them get a secured loan for the amount needed
  • Deposit the amount you’re loaning into the secured savings account
  • Get the funds disbursed and given to your family or friend
  • Have your family or friend repay back the loan to the financial institution
  • 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. After repayment, the cash deposit that secured the loan was released back to me.

Not only did I help my friend with the cash he needed. He was able to improve his credit too.

Sometimes just saying no is enough

I’ve discovered when people have said no to me when I asked for money I found an alternative way out. I’ve also come to realize that when we say no to family or friends who ask to loan money they often find another solution. In one situation, it caused a friend to seek debt settlement and counseling that helped improve his long-term financial outlook. He realized that loaning money to pay for one month’s bills wasn’t going to solve the need for money to pay the next month.

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