should I lend my friend money

At The Real Debt Guy, we've created our simple Lending Code to help you steer clear of these issues. These three key rules are here to support you and protect your financial well-being.

1. Avoid lending money to anyone who repeatedly asks to borrow.
2. Lend only what you can afford to lose.
3. Do not take out borrowing for someone else

We will walk you through each rule below, using real-world scenarios to show why they are so important.

How to Deal With Someone Who Keeps Asking to Borrow Money

RULE 1 - Avoid lending money to anyone who repeatedly asks to borrow it.

If someone frequently needs to borrow money, the root cause is rarely a temporary setback. More often, it is their spending habits. People who are constantly borrowing tend to spend beyond their means; they have formed a pattern that lending cannot resolve.

Consider Rich's story. In our article, 'How do I start controlling my spending?', he was stuck in a cycle of credit card debt, constantly overspending. Receiving a friendly handout from a friend would only exacerbate his problems, adding more debt and potential issues later. While you might think you're helping as a friend, the reality is: if their spending habits remain unchanged, how can they repay you?

Becoming Their Personal Credit Line

When you lend money to a serial borrower, you send a signal: "I will bail you out." The moment you lend that person money, you become an option. Be prepared to become their go-to person again and again. You've essentially become their unofficial credit line, and unlike a bank, you can't enforce interest rates or repayment terms without harming the relationship.

This dynamic creates several problems:

• They fail to tackle the root causes of their spending problems.
• They view you as a reliable source of funds
• The requests may become more frequent and the amounts larger.
• You may find yourself emotionally involved in their poor financial decisions.
• The friendship shifts from being authentic to being more transactional.

Just Say No—It's Kinder in the Long Run

Just say no! While it might feel a bit uncomfortable at first when you turn down lending money, remember that this tiny moment of awkwardness is far better than what could potentially happen if you don't. By choosing not to lend in such situations, you're actually showing respect to them. Instead of unintentionally supporting their unhealthy financial habits, gently encourage them to find alternative solutions that don't involve borrowing more money.

Help them explore alternatives like:

• Creating a realistic budget
• Seeking debt guidance on our website
• Speaking to a financial advisor
• Using our budget planner to understand their finances better

What Is the Old Saying About Lending Money?

RULE 2 - Lend only what you can afford to lose.

If you are seriously thinking about lending money to someone, only do so if you can afford to lose it and survive without it. There is a high chance you won't see that money again, which could leave you financially vulnerable. It's a gamble, and the main rule of gambling is never wager more than you can afford to lose.

The same idea holds when lending money to friends and family. Once the money is handed over, it's no longer in your control. Without risking damage to your relationship, you don't have any legal options. If you need that money to pay your mortgage, fund your child's education, or handle an emergency, it's best to avoid lending it in the first place.

Protecting Your Financial Security and Your Relationship

Never lend money that could jeopardise your financial stability. It makes no sense for both of you to be struggling. It also makes no sense to burden your relationship with financial tension and resentment.

When it comes to a partner or a close friend, it's important to set aside your feelings for a moment. As the saying goes, 'You've got to be cruel to be kind,' and here's why this is so important:

• Financial stress leads to tension in relationships: When money is involved, conversations often become charged, turning minor disagreements into arguments about finances.
• Your own financial security matters: You cannot pour from an empty cup. If lending money puts your finances at risk, you're not helping anyone; you're creating a crisis for both of you.
• Clear boundaries show respect: Setting a limit shows you value the relationship enough to protect it. It's not selfish; it's sensible.

Ask yourself these critical questions before lending:

• Can I afford to lose this money completely?
• If I don't get repaid, will my bills still be covered?
• Will this affect my ability to save or invest for my future?
• Am I prepared for the impact on the relationship if they don't repay me?

If you answer "no" to the first question, stop right there.

Can I Take Out a Loan for Someone Else?

RULE 3 - Do not take out borrowing for someone else.

This rule must never be broken because it is extremely important and involves significant financial and emotional risks. Lending money or taking out a loan in your name for someone else is one of the riskiest financial choices you can make.

Situations may not always be this extreme, but they highlight what is at risk. The loan is registered in your name; you are responsible for the repayment. Full stop.

Why Taking Out a Loan for Someone Else Is Financial Suicide

If you're taking out a loan on behalf of someone else, stop to consider why. Here's the harsh truth: the person requesting the money cannot afford whatever they need it for, which is the root of the problem. Borrowing more money for someone else will not necessarily solve their issues. It will create new problems for them and also for you.

When you take out a loan for someone else, you become legally responsible for that debt. You're responsible for:

• Monthly repayments: If they don't pay, you must, or your credit score suffers
• Late fees and penalties: These fall on you
• Interest charges: You're paying for their borrowing
• Court action: If the debt isn't paid, the lender pursues you, not them
• County Court Judgments (CCJs): These affect your credit rating for six years

Combining Relationships and Borrowing Money

Combining relationships and borrowing money involves significant risks. When you end a relationship or fall out with a friend or family member, it's usually because something has caused the relationship to deteriorate. Trust is no longer present. This is an important factor to consider if you're thinking about borrowing on behalf of someone else. If anything were to go wrong in your relationship, you'd be relying on them to 'do the right thing.' Can you say with 100% certainty that they would? People change. Circumstances change. What seemed like a solid relationship one month can unravel in the next.

If the answer is no, you're putting yourself at risk. If the answer to the question is yes, you should recognise that relationships can change, and so can people.

The Lender Only Knows You

Here's what you need to understand: the company you're borrowing from only knows you. They are unaware you're borrowing on behalf of someone else. They don't care about your relationship. It is solely you they will contact if payments are missed. Only you might be at risk of a CCJ if the debt isn't managed properly.

Many people are caught off guard here. They believe that if the relationship ends, the other person will take responsibility and help out. However, legally and practically, you're on your own since you signed the loan agreement and are responsible.

Business With Friends and Family: Treat It Like an Investment

Relationships can also break down in business. When lending money to a partner or friend to start a business, approach it as an investor rather than as a generous friend. Make sure to:

• Own part of the business: Don't just lend money; acquire equity. This provides you with a stake and protects your investment.
• Set up monthly loan payments: Have a formal agreement in place with clear repayment terms and dates.
• Secure legal protection: Have a solicitor draft a formal loan agreement or investment contract. Yes, it may feel awkward, but it safeguards both parties.
• Understand the business plan: Don't simply give money. Know its purpose and how it will produce returns.
• Establish clear expectations: What happens if the business fails? How will you recover your investment?

Business with friends and family is still business. Don't leave anything to chance. The emotional attachment shouldn't override the need for legal protection.