Money Experts Share Their Worst Experiences Lending Money to Friends
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Cindy Lamothe
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Amber Barkley
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Ever wonder how money experts handle the big problem of lending money to friends and family? As it turns out, some of them have pretty memorable experiences doing so — and they learned valuable lessons as a result.
Below, two money experts share the do’s and don’ts of lending money to loved ones.
You May Not Be Repaid the Full Amount You Loaned
“A long time ago, I lent money to a friend to repair and repaint a fixer-upper car he had bought,” said Dmitriy Aseev, payments technology at JPMorgan Chase & Co. and author at Money Knack. “At the time, he had recently moved to another country, so I transferred the money in my currency, which was converted to his local currency.”
Aseev’s friend used the money to fix the car but needed time to recover financially.
“I didn’t want to pressure him, so I never reminded him about the debt,” Aseev said. “Occasionally, he would remember on his own and assure me he was working on it. A few years passed with sporadic mentions, and one day, he finally returned the money. He was deeply apologetic for taking so long and for forgetting about it multiple times.”
Currency Value Changes Over Time
Besides taking so long, Aseev said there was another issue his friend didn’t take into account. “He repaid the debt in his country’s currency, based on the converted amount he remembered receiving years ago.”
Because the value of his friend’s currency had gone down, it was no longer worth as much in Aseev’s currency, so even though the same amount was transferred back, it was worth less. “And that’s not to mention the impact of inflation, which further reduced the value of the money over the years.”
Aseev said he wasn’t upset with his friend, though. “I knew what I was getting into, and I genuinely wanted to help him at the time. But there are lessons others can learn from this when loaning money to friends or family.”
People Make Promises They Don’t Keep
According to Kevin Shahnazari, founder and CEO of FinlyWealth, lending money to friends and family can lead to deeply challenging experiences that strain relationships.
“One of my most difficult moments occurred when I lent a significant amount to a close friend who assured me that repayment was imminent,” he said.
As time passed, however, excuses piled up, and Shahnazari found himself not only financially burdened but also emotionally drained as his friendship deteriorated due to the unfulfilled promise of repayment.
“I learned the hard way that ‘the moment you mix money with personal relationships, you risk losing both,'” he said.
He added that if he could turn back time, he would approach such situations with much clearer boundaries.
Additional Advice From Experts
It can be hard to turn down a loved one who comes to you asking for help. Here’s some expert advice on how to handle those situations.
Treat Loans as Business Transactions
“Instead of viewing the loan as a simple act of kindness, I would treat it as a business transaction, complete with a written agreement outlining repayment terms,” said Shahnazari. “This would not only protect my finances but also preserve the integrity of our relationship by setting realistic expectations from the outset.”
He explained, “Establishing clear terms can prevent misunderstandings and maintain trust.”
Set Clear Repayment Terms
“Always negotiate a firm repayment date,” said Aseev. “Money loses its purchasing power over time due to inflation, so the longer you wait, the less value you ultimately receive. Agreeing on a specific time frame helps address this issue.”
He also advised specifying the currency for repayment. “If you are sending money internationally, make it clear that the loan is in your currency and should be repaid in the same currency. This avoids any confusion or discrepancies caused by fluctuating exchange rates.”
And finally, Aseev recommended communicating openly. “Don’t hesitate to remind the borrower about the loan if repayment deadlines pass. … Friendly, respectful reminders can help avoid long delays and misunderstandings.
Give Money as a Gift Rather Than a Loan
In hindsight, Shahnazari advised others to consider giving money as a gift rather than a loan if they feel compelled to help.
He said this approach eliminates the pressure of repayment and allows for genuine support without the potential for resentment or conflict.
“I’ve come to understand that sometimes, the best way to help is to offer support without strings attached, which can safeguard both finances and friendships,” he said.
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