Having one of your friends or family members borrow your favorite striped blazer is usually not a big deal — as long as no red wine mishaps are involved. But what about when it comes to a bigger borrowing ask — as in, a couple of thousand dollars bigger? Saying no might be hard, but saying yes might end up being much, much harder on your budget — and your friendship.
When a close friend asks to borrow money, your instinct might be to respond, “Yes, of course!” because you know they wouldn’t be asking unless they were in need. And you’re in good company — more than 90% of young Americans say they would be willing to lend money to a family member in need, according to a study conducted by American Consumer Credit Counseling. However, more than a third of Americans who decided to lend financial help experienced negative results, according data from Bankrate. And those “negative results” include everything from never seeing that money again, to a friendship that meets a bitter end.
So, even though “I can’t” might be hard to say right now, having that awkward conversation up front is likely to save you a lot of heartache down the line. Here’s a guide for how to handle it if you’re confronted with this sticky situation.
Don’t loan money that you can’t afford
The first rule of thumb here might seem obvious, but it bears repeating: Loaning money that you don’t have is always a hard no. If you have ample means to help a friend, then it’s something you can consider, but unless you have a surplus that you can count on every month, you can immediately rule out offering financial assistance.
If you have the means to help, you can then assess what your friend needs. Maybe you can buy their groceries, take them on an all-expenses-paid Target run, or do something else that allows you to spend time with them + help them out, without overburdening your budget. Those oft-repeated travel rules apply here, too: Put your own oxygen mask on before helping others, Carroll says.
Crunch the numbers
If you’ve taken a hard look at your finances and you’ve determined that you’re able to help without burdening yourself, it’s time to dive into your friend’s finances. There is nothing wrong with knowing exactly where your money is going — ask them what expenses you would be contributing to, and ask them for their proposed plan to pay you back. If you feel like you have a better head for budgeting than they do, you might even want to sit down with them and review their budget to make sure they aren’t losing money elsewhere. You can go through their expenses with them, and see if you can offer suggestions that might help them save money, says Elizabeth Caroll, financial life coach. Making sure they have an awareness of their expenses is just as crucial as helping them with a loan or gift.
Get everything in writing
To ensure that you’re paid back on the timeline that you expect, get all the terms of your loan down in writing. Create a list of requirements or requests that make you feel good about the money you’re giving to a friend, says Carroll. Having these boundaries and set expectations will help make you more comfortable with the process, and your friend should have no problem agreeing to this, since you’re helping them out. If your friend balks at having an official agreement, that’s a red flag, and a sign that you should reconsider your generosity. If they truly expect to be able to pay you back on the timeline agreed upon, they should have no problem seeing those terms reflected in writing.
Honesty really is the best policy
If you can’t afford to help, you simply can’t afford to help. It really is that simple. Your friend will understand. It’s so much better to say no up front than making a loan that you don’t have on hand. If you end up running out of money, you could end up panicking and asking your friend to pay you back immediately, and things could easily spiral out of control from there.
A simple, “No, I cannot afford it right now,” is a polite and transparent way to keep the relationship healthy, says Bola Sokunbi, Author and Founder of Clever Girl Finance. Whenever you keep the lines of communication open, you can rest easy with both your conscience and budget in the clear.
More on HerMoney:
- HerMoney Podcast Ep 279: Becoming A Boundary Boss: You Can Say No
- HerMoney Podcast Episode 278: We’re Lonely. Let’s Fight It With Friendship
- In A Financial Pinch? Here Are Some of The Cheapest Ways to Borrow Money
Editor’s note: This post has been updated for the 2019 tax filing season.