Can You Spare A Dime?

We all have that friend or family member. The one that is always getting a new car (Tesla this go-around). Goes out to Dave and Busters like it's his birthday on the regular. Flies out to Vegas way more often that the average human could tolerate. You wonder, "How does he afford all of that?". Then, the day comes. The text asking for a little help to get through a rough patch. That's a hard pass, right? But what if that same request comes from your adult daughter who just lost her job and has three children to support? Or your best friend who just got separated from his wife and needs to find a new place to live immediately?

Loaning money to family or friends is a difficult proposition. You want to help, but how much can you loan? Is it truly helping to overcome a temporary issue, or is it enabling a bad habit? How will it change your relationship? And, honestly, will you ever get your money back? If you choose to do so, here's a checklist for how to loan money to loved ones responsibly:

(0) Yes, I started a list with a zero! Before doing anything else, did the person pursue other options to get money? Bank loans? Other friends or family? Deferring payments on mortgages, rent, insurance, or utilities? Especially during COVID-19, many companies are allowing customers to pay bills weeks or months later. Even outside of this situation, you can always reach out to a company and see what payment options are available. Maybe the time has come to sell those vintage He-Man action figures on eBay.

(1) Decide if you feel the person receiving the loan is trustworthy and capable. If this is someone who you have seen act responsibly and ethically, and has been able to handle other financial obligations (mortgage, student loans, etc.), your risk is lower. If you have doubts, don't do it!

(2) Understand the situation causing this request. Did a legitimate life-changing event (medical problem, car accident, etc.) drive this need? The more details you have, the better a decision you can make.

(3) Ask specifically how much money is needed. Is it a one-time loan, or will this person need help every week/month to cover bills?

(4) Take your time to ask yourself: Can I afford to make this loan, knowing you may never get paid back?

(5) If you choose to move forward, you must do one thing. Sign. A. Contract. Do you need an attorney? Not necessarily. There are plenty of legal websites that offer low-cost or even free trial periods that will allow you to make a legal document for almost any situation. Spell out the terms - how much money, what it may be spent on, when/how you expect to get paid back ($300/week via PayPal every Friday until loan is paid off), and make sure you both sign it - ideally captured electronically for documentation purposes. You may be hesitant to ask the other person to sign a contract, but if they truly need help and genuinely intend on paying it back, this should not be an issue. If the person takes offense, that should raise a red flag.

(6) Pay close attention to the loan throughout the repayment period. Is the borrower meeting the terms - full amount paid and on time? Yes, things happen, but if you had a fair agreement in place, both parties need to hold up their end. If you decide to make an exception, revise the contract (or make an addendum) accordingly and both parties sign the revisions.

(7) Recognize, regardless of the arrangements made, this will impact your relationship. For the duration of the loan period, expect some tension on each end. If both of you can get over that, and if you are paid back according to the contract, it may be temporary. But what if the person doesn't repay you, in part or at all? Can you really continue the relationship as normal? Is this someone who you cut out of your life? A friend may be easier, but a family member? See how next Thanksgiving goes.

(8) a. If you are repaid in full, and on time, move on. Don't hold it over the borrower's head, and don't expect any special treatment or reward for your deed. If the borrower takes you out to Zoup! for lunch as a thank you, graciously accept and continue your relationship.

b. If the loan is not repaid, especially without explanation or you get ghosted entirely, weigh your options. Going back to (4), hopefully this is not life-changing money for you. If you can go without the money, move on and reconsider your relationship with this person going forward. If your circumstances changed since the loan was made, or you loaned more than you were truly comfortable with, you can take the legal route. An attorney (for a fee) could send a letter on your behalf, with the contract enclosed, to try to solicit payment. If that doesn't work, you could pursue repayment through small claims court. Both options are costly and time-consuming, so weigh these carefully. While you have every right to be upset, don't pursue legal options based on emotions alone. If I've learned anything from Judge Judy, that doesn't play out well in the courtroom!

So, if approached, should you loan money to a friend or family member? It's truly your call. You can evaluate your trust in this person, and you have to live with the consequences. I'm just a guy with a personal finance and career advice blog, not a relationship expert. But, think about it carefully. If you proceed, do it on your terms, and accept the risks to your money and relationship. And, while I have your attention... my investment in an offshore gecko-breeding operation went sideways, and I could use a little cash to make it through until these geckos can start getting more mascot work. Can you spare a dime?