We all go through our times of financial need, and we all have our ways of dealing with it. One of the most common is borrowing money. Usually, we would ask for it from a bank or a lending company, but sometimes the requirements can be too much.
So, some people try to borrow from their family members or friends. It might make sense to you to help them in their time of need, but here are some good reasons for you to avoid lending money to them.
It Might Enable Rather Than Help
One of the possible drawbacks of lending money to your family and friends is that it might come to harm them more than help them. An obvious example would be if they were to use the money to fuel a bad habit such as gambling and drugs.
Another more subtle situation would be if they started depending on you for everything. Your wealth management advisor here in Perth is strict with you and your use of money, and you are doing well, and the same would also apply with you and your loved ones.
You Might Lose Money That You Need
You might have quite a bit of money now, but you never know when you will come to need what you have stashed away. Lending some funds to your relatives and friends might leave you with less than what you need for a future emergency. The worse part of it is that you can lose it and never get it back.
Or if it is possible to get it back, it will become quite awkward. Lending to close acquaintances is like gambling in that you should only use what you are willing to lose.
You Might Lower Your Credit Score
Sometimes, the sort of borrowing that your relatives and friends are doing is not exactly just cash. A possible situation would be if you were asked to co-sign for a loan. If any of you are late in your payments, both of you will suffer.
And while you suffer, your credit rating might go down, and you would have a harder time applying for loans of your own. That would not be a favourable situation to be in at any time.
Your Relationships Might Turn Sour
Lending money is a show of trust, and not paying it back can break that trust, little by little. As the loaned amount sits longer unpaid, the worse it will be for you and your family member or friend. Some people might dismiss this as a small problem, but some people have cut ties because of it.
If you are planning to lend any amount to your family member or friend, you might want to make it a gift instead, so you do not have to think about it.
You might love your family and friends so much that you are willing to give to them. However, sometimes a different kind of love is needed. There are times when you should provide them with some tough love, where you do not lend them any amount of money.
It can and will be better for your finances and your relationships.