Think it through before lending money to a friend

Question: A good friend of mine is in a tight spot financially. I'd like to help her out, but I'm worried that lending her money might sour the friendship.

Answer: Adding money issues to a friendship can result in an explosive situation. The first thing you need to do is determine why your friend is having financial problems. Is this a temporary state, or does your friend always seem to be struggling? If financial panic is a recurring theme, you need to understand that in most cases the problem runs deeper than a lack of funds. Sometimes people overspend to assuage feelings of inferiority or inadequacy. Or they run up debts trying to find happiness through expensive possessions. Others are never inclined to set aside money for unexpected expenses and are consistently flattened by them. Unaware of the true reason for their financial irresponsibility, people like this usually have difficulty changing their fiscal habits.

If your friend is always experiencing financial problems, any money you give them will just serve as a Band-Aid, and sooner or later your friend will be in dire straits again.

Ask yourself: Can I afford the loan? What would happen if your friend never paid me back? How would you feel? If you cannot afford it, or if you are not willing to relinquish your hold on the money, don't make a loan. On the other hand, if your friend is ordinarily financially responsible and you are sure you won't need the money soon, draw up a loan agreement detailing how much you are lending, when exactly your friend will repay you, and whether both of you would feel better if the loan had interest.

One 2 One Lending provides the tools to “Get it in Writing.” The AgreementBuilder will walk you through step by step in creating a promissory note and loan schedule. This way your money will help not only your friend and it won't destroy the friendship.