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

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

In a recently updated article, I shared simple rules for loaning money to family and friends and maintaining 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. Being on both sides shaped my current thinking and actions regarding loaning money.

I’m the first to admit there are emotional and mental aspects to borrowing and lending 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 shown vulnerability. However, as the person who lends money, you’re put into a tough situation of 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 never seemed to have enough money.

I remember one particular situation in which I asked a good friend for money. I needed to pay for my car insurance, and with no questions asked, he loaned me $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.

Coincidentally, 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 rationalized that my friend’s loan wasn’t 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. One day, he asked about the loan. I remember how embarrassed I felt. I was ashamed of my avoidance and carelessness. Eventually, I did pay him back, months later than agreed.

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 enough to help family and friends.

When I began loaning money, I experienced avoidance from them. I also had family tell others that I was “worse than a debt collector.” I had only asked to be repaid once, months after she had promised to repay the loan. In another instance, a friend told me I was greedy asking for my money back since I looked like I was doing quite well.

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 family and friends out of their stressful situations.

Having experienced the other side of loaning money, I see what my friend back then may have observed. He may have seen me spending at the bars while avoiding my obligations. Because I saw friends and family posting pictures of their vacations and shopping finds while avoiding repaying their loans. I remember seeing one friend post the $500 pair of sneakers he bought while I was side-hustling to earn extra money.

Should you loan money to friends or family?

People borrow money for several 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.

The truth is that I’ve seen these loans do some nasty things, like destroy marriages and 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 money to give, 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. 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.

Some people want your help without questions. A good process is to determine if the situation is life-threatening. If a friend’s life is in danger, however, I will do my best to help and offer resources.

If you discover they are safe but under financial stress due to debt collectors, share how two federal agencies are on their side. The Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) have portals to lodge complaints, and these federal agencies will follow through.

Make it an investment

Sometimes, a friend needs a loan to help with a business idea. Analyze the request as if it were a business opportunity. Ask questions about the business plan, product, and revenue projections. If your friend is going into business, 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, I consider two things: 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 to borrow money to pay for moving violations or parking tickets. One such friend had two tickets for using a cell phone while driving, totaling $600. He didn’t have the money to pay and feared losing his license.

I wanted to help him in this situation, but I could also be enabling his careless behavior. Instead, I offered him ways to earn money to pay off the violations. At first, that wasn’t the answer he wanted, but eventually, he realized that “having to work more” to pay for tickets meant he needed to change his behavior–stop texting while driving.

Help create a savings habit

If you want to loan money to family or friends, consider opening a secured loan for them. Banks and credit unions offer secured loans to people who may not be approved.

You can follow these steps:

  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 friends.
  4. Have your family or friend repay the loan to the financial institution.
  5. Once repaid, the secured savings are released back to you.

I helped a friend secure a $2,500 loan from a credit union. We opened a joint account. 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 with interest!

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

Sometimes, just saying “no” is enough

I’ve learned that when people say “no” to me, I find 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 3 times more than his annual income. Having worked in the financial space for some time, I knew he needed 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 wouldn’t 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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