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Between high interest rates and the increased cost of living, people from diverse backgrounds are facing financial pressures.
If a friend or family member needs to lean on you for help, your first instinct may be to support them no matter what.
But supporting someone else can impact your finances, too. You may want to help, but you don’t want to compromise your financial health in the process.
Before you lend money to a friend or family member, here are a few points to consider:
How much money does this person need – and is that an amount you can afford to part with?
Consider what might happen if you don’t get your money back. Would you still feel comfortable giving out the funds, or would it jeopardize your own financial position?
Remember: Never lend more than you can afford to lose. Doing so puts your own finances and credit score at risk.
Another point to consider is how your friend or family member got into this difficult financial position to begin with.
Is it a temporary hardship caused by an unexpected life event, like losing a job or falling ill?
Or is it linked to a pattern of behaviour, such as a gambling problem or overspending?
If it’s the latter, other solutions (such as meeting with an advisor) may better address the root of the problem.
If you don’t feel comfortable mixing money with your family or friendship, look for other ways you can offer help that don’t involve lending funds.
How else can you ease the pressure on someone facing financial hardships? For example, you could:
Is the money a gift, with no expectation of repayment, or is it a loan? If it’s a loan, when do you expect the money to be repaid by?
Consider what might happen if the person is unable to pay you back by the date you’ve agreed upon. Would you charge interest or late fees on the amount owed?
It may be uncomfortable to have these conversations. Still, it’s best to talk through these topics ahead of time to ensure you’re both on the same page.
When lending money to a loved one, you may want to set clear deadlines for when and how it will be repaid. Before moving ahead with it, create a written agreement that outlines:
Then, make sure both of you sign the agreement.
Having it in writing may reduce any uncertainty you feel about lending money. It also ensures both you and the person you’re lending to are on the same page about the conditions of your loan.
Lending money can put a strain on your relationship– especially if the person has trouble paying it back. Is this something you’re prepared to deal with?
You may need to tell them you don’t feel comfortable lending them money. While that can be a tough conversation to have, the alternative is agreeing to something that could damage the relationship further.
Our advisors are here to help when you or your loved ones are facing financial difficulties. From debt consolidation to tweaking your budget, we can help you find solutions to improve your financial situation. If you’d like to talk through your options, book a meeting today!
We would be happy to discuss your unique situation with you.
Our goal is to make complex topics like this one, simple.
It takes less than 5 minutes to make an appointment or to apply online. It is up to you how you want to meet your advisor - you will have the option to meet your advisor:
