At some point, most of us have been put in a position where we have been asked for money by someone who is close to us, being either a family member or a friend. Numerous relationships between family and friends have been destroyed because of money owed, and its related problems.
You might think that it is a good idea to help out a person in need, however not all which appears nice and kind is beneficial in the long term, either for you or the person you are helping. This article will discuss why lending money is not a good idea.
First off, you are most likely a last resort in helping this financially troubled individual. This person might not even qualify for a bank loan since they may be too high a risk, especially when considering that banks make interest return, something you will most likely not make. In this regard you are taking a risk with no potential reward. You would be lucky if you get your money back!
Approximately three quarters of people who lend money never get paid back in full, so you might as well think of it as a gift, so if you are lending money, make sure that you are comfortable parting with that amount.
Most types of loans consist of parents lending money to their adult children. In certain cases, the reason or intention for lending money is good, such as a one-time emergency that could not be anticipated. That said, more often than not, parents lend money to their adult children to make up for their financial mismanagement and bad habits. This creates a scenario whereby a young adult becomes over-reliant on the good nature of their parents and never develops sound money management discipline.
That said, you may end up in a situation where you regret the money lent as you will need it for your own personal problems or emergencies. Draining the money you have saved to help a friend could leave you in a similar position as the vulnerable person you are lending to.
Apart from the numerous risks, it will become difficult to ask back for the payment if repayments run late. The conversations then become awkward and as time progresses things get worse. Following these late payments, you will then have to chase more and more for your money, constantly badgering your family member or friend. This will undoubtedly impact the relationship negatively.
You are now put in an uncomfortable position as the verbal agreement of being paid back was not honoured by the receiving party and on the other hand, the person who borrowed the money will feel uncomfortable with your presence because they know they owe you. Definitely a lose-lose situation. So if you are lending money, make sure you are doing it the right way via a signed agreement, unless you can afford to wave good-bye some if not all the money lent.