Do's and Don'ts of Lending to Friends and Family
Lending money to friends and family can be a generous way to help those you care about, but it also comes with risks that may affect both your finances and relationships. To protect yourself and maintain healthy bonds, it’s important to follow these crucial do’s and don’ts when lending money.
Do's
Take Care of Your Own Finances First
Ensure you have a stable income, manageable debts, and an emergency fund before lending money. Only lend amounts you can afford to lose without jeopardizing your financial security.
Lend Only to People You Trust
Evaluate the borrower’s reliability and financial responsibility. Lending to trustworthy individuals reduces the risk of non-repayment and preserves relationships.
Set Clear Terms in Writing
Document the loan details—amount, repayment schedule, interest (if applicable), payment methods, and consequences of default. A written agreement minimizes misunderstandings and provides clarity.
Consider Relationship Impact
Understand that lending money can strain relationships. Weigh if lending is likely to help or harm your bond and be ready to say no if necessary.
Be Prepared to Lose the Money
Mentally prepare yourself to potentially not get repaid, especially if the borrower’s financial situation is uncertain.
Communicate Regularly
Maintain open and regular communication with the borrower about repayment status to avoid surprises and build trust.
Don'ts
Don’t Jeopardize Your Financial Stability
Never lend money if it compromises your ability to cover your own essential expenses or emergency savings.
Don’t Lend Because of Pressure or Obligation
Avoid lending out of guilt or social obligation. It’s okay to say no and explore other ways to support your friend or family member.
Don’t Co-sign Loans Without Understanding Risks
Co-signing can impact your credit score and make you liable for the loan if the borrower defaults.
Don’t Treat Loans as Gifts Unless You Mean It
Be clear whether the money is a loan or a gift; unclear intentions can cause misunderstandings.
Don’t Make Verbal Agreements Alone
Avoid informal or verbal agreements without proper documentation to prevent disputes and confusion.
Don’t Ignore Your Partner’s Opinion
Discuss lending decisions with your spouse or partner, as loans to family or friends can affect shared finances and relationships.
FAQ – FREQUENTLY ASKED QUESTIONS
Should I charge interest when lending to family or friends?
Charging interest is optional but can formalize the agreement and encourage repayment. Decide based on your relationship and comfort level.
What if the borrower cannot repay on time?
Be open to discussing new terms or extensions, but keep communication transparent to avoid misunderstandings.
Is it better to give money as a gift than a loan?
If you can't risk losing the money, gifting might be safer. However, set expectations clearly to avoid confusion.
How can I protect myself legally when lending money informally?
Having a simple written loan agreement outlining terms and repayments is usually sufficient and can be legally binding.
Can lending money harm my relationship?
Yes, lending to friends or family can create tension if repayment becomes difficult. Clear communication and agreements help prevent conflict.
What should I do if the borrower stops repaying?
Approach the borrower with empathy, try to understand their situation, and consider mediation if needed.
Published on: July 24, 2025
Published by: PAVAN
www.vizzve.com || www.vizzveservices.com
Follow us on social media: Facebook || Linkedin || Instagram
🛡 Powered by Vizzve Financial
RBI-Registered Loan Partner | 10 Lakh+ Customers | ₹600 Cr+ Disbursed