Five Things You Should Consider Before Lending Money to Your Friend

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(Edited)

Money is often the reason why brothers fight each other
~ African Proverb
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Whether you like it or not, there comes a time in your life when you might need to lend some money to a friend or other close associates who are in need. In some cases, how you handle the request will decide the fate of your relationship.

Outrightly turning down your friend, especially when he perceives that you can help, could strain your relationship. Worse still, if you help out and lend your friend some money, his inability or unwillingness to pay back could be the nail in the coffin of your relationship. This is because humans are, as a rule, more enthusiastic when lending money than they are during repayment.

It is very sweet to eat pork meat but very unpleasant to pay for it.
~ African Proverb


So, this article explores five of the most important considerations when you want to lend money to your friend.

1. The Willingness to Pay Back

The first and perhaps the most important consideration before lending money to your friend is for you to ascertain whether or not he has a willingness to pay back.

Unfortunately, willingness is not like a turkey that can be scaled - you have to figure it out yourself. If your friend is unwilling to pay back, the money you're lending out is a potential bad debt. Therefore, a friend that lacks the willingness to pay back is not fit to be lent money in the first place.

2. The Capacity to Pay Back

The next thing you will have to consider is your friend's capacity to pay back. A person could be willing to pay back but lacks the capacity to do so. And that is clearly a sign of danger. How do I mean? I will explain briefly.

Imagine that a friend whose sole monthly income is $1,000 per month approaches you to lend him $50,000 to meet an urgent need. He promises to pay back in two weeks time. The truth is that your friend could be willing to pay back but he clearly does not have the capacity to do so as it would require him over two years to earn the requested sum.

3. Credit History

Also, you need to consider any known credit history of your friend. Has your friend borrowed money from other sources in the past? If yes, did your friend default with his payment? If yes, why did he default and what makes it a different story this time around.

The extent to which you are able to find unbiased answers to the above questions will determine whether or not you should go ahead with the lending.

There is no imprisonment for a debtor.
~ African Proverb


4. The Loan Purpose

Another very important factor to consider before lending money to a friend is the purpose for which the money is required. Of course, you don't need me to tell you that is it wrong to lend money to a person whose intention is to gamble or take hard drugs.

Also, it is wrong to lend money to a friend who has misplaced his priorities. Chances are that you'll run into trouble because of his bad financial acumen.

5. Don't Lend To a Friend the Money You Can't Forgo

The above is one of the truest mantras about lending money to a friend. If you know that you can't forgo an amount of money, never lend it to your friend because of the potential disappointment and heartbreak that could result from your friend's inability to pay back.

So, if you friend asks to be lent a $1,000 you may lend him $500 instead, knowing full well that you could part with the latter sum even if the money becomes a bad debt - only then would you have a rest of mind.

Posted via Steemleo



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13 comments
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Hi @gandhibaba

I think like you in the sense that it is very important to know what is the reason for the loan. That is why banks request so many requirements and do a thorough research before granting a loan.
Personally I do not like to lend money to friends or family, because from experience I know that we will end up arguing and I try to avoid that.

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Personally I do not like to lend money to friends or family, because from experience I know that we will end up arguing and I try to avoid that.

We are on the same page. Cheers!

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Some solid tips buddy.

Perhaps it's best not to lend money to anyone at all? :P

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Yes Piotr. It's better not to lend money you can't give a friend. Thanks for stopping by.

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However if you would ever like to lend me some money then I'm your guy! :D

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Most times I consider the loan purpose simply because the reason behind a loan will also ensures the means for payback. It's quite a beautiful read, basically loan for business is more susceptible for payment

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I once learnt from someone special that when you want to lend to your friends, ensure it is something you can give away, the truth is that, they may not have the means of paying back at the time they promised.

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You're right and I completely agree with you.

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@gandhibaba you are right

The Willingness to Pay Back

i learnt a friend money once but he find it hard to pay bavk

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Very much true information that are all things I check before I lend money to my friends thanks for sharing that realistic information

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