I think William Shakespeare said it best, “Neither a borrower nor a lender be . . .” [“Hamlet,” Act 1, Scene III.]
Of course, that’s pretty much impossible. We have student loans, car loans, and mortgages. Who hasn’t hit up a parent or grandparent for an assist at one time or another? Circumstances generally win out over pride when someone you know and love asks YOU for a loan.
If you’re in a position to help, be grateful. Then be smart. Understand the risks and understand how to do your best to avoid them.
RISK #1: You transfer funds into your nephew’s bank account without discussing the terms of the loan and now you’re worried that he’ll take 20 years to pay it back.
RISK #2: You’ve made the loan to your sister-in-law, and now you feel awkward seeing her at family gatherings.
RISK #3: Your friend hits you up for a second loan and now you wonder if you should install an ATM in your driveway.
RISK #4: You’ve helped out your former college roommate, and now he’s going skiing in Aspen.
RISK #5: Your borrowing friend isn’t returning your phone calls or texts, and now you think you’ve lost both your buddy and your money.
I have some simple suggestions on how to avoid these risks. My first tip is the most important. The initial conversation; i.e., when you’re being asked for money, is the prime opportunity to talk about your expectations. That’s right. I said TALK ABOUT YOUR EXPECTATIONS. Why does she need the money? When does she expect to pay you back? Are you going to charge interest? Take care of the lending business first.
Next stop in the conversation is to address the personal business. Assure the borrower that your financial dealing with him/her is nobody else’s business. You will respect the privacy of the loan at all times, so future social gatherings need not be awkward.
If you’re asked a to make a second loan, rather than immediately reaching into your wallet, why not have another conversation about what’s really going on? Instead of continuing to enable this friend or relative, offer to help with a budget. If she’s really in over her head, some practical advice might be a better investment than writing a check.
When you find out your loser roommate is skiing on your dime, tell him how you feel. Send him a text: “I hope you had a terrific time in Aspen, but I must admit I’m concerned about you paying me back. We need to talk about this a.s.a.p.”
What to do if the borrower is avoiding you? First you might want to figure out which is more important to you, the money or the friendship. If it’s the former, be persistent. Ask for a partial payment, or suggest a payment plan (which you should have done in the first place). If it’s the friendship, also be persistent.
And if you’re still being ignored, write off both the money and the friendship. Read the first act of “Hamlet” instead.