I’m a Financial Expert: Here’s Why You Shouldn’t Loan Money to Friends and Family

Businessman hand sending money to another business person.
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Navigating personal relationships can be challenging. Intertwining them with financial obligations can add an extra layer of complexity. Lending money to friends and family might seem like a gesture of goodwill, but it often leads to unforeseen complications. Combining financial and emotional bonds can strain relationships, blur boundaries, and create uncomfortable dynamics.

GOBankingRates spoke with Mary Hines Droesch, head of consumer and small business products at Bank of America. She shared her expert advice, explaining why mixing personal relationships and money might not be the best course of action. Here’s what she had to say about supporting loved ones in need.

Pitfalls of Lending Money to Friends and Family

GOBankingRates:  Why is it generally a bad idea to lend money to friends and family? What are the pitfalls?

Mary Hines Droesch: According to recent Bank of America data, about one-third (34%) of Americans are unsure about what the proper financial etiquette should be around lending money to a friend or family member. While every situation is different and lending money to friends and family is a personal decision, it’s important to consider if lending money could potentially hurt or damage the current relationships should unforeseen issues arise. It’s in your best interest to only lend money to people you trust and limit those loans to what you can reasonably afford. 

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What To Do if a Friend or Family Member Won’t Repay a Loan

GOBankingRates: What should you do if a friend or family member doesn’t (or won’t) repay a loan?

Mary Hines Droesch: According to Bank of America data, nearly 1 in 5 (19%) people never remind someone after they’ve requested payment the first time. If you haven’t heard from your friend who owes you money in a while, follow up with them first, assuming good intentions. Being financially responsible means knowing when to hold others accountable – even when it feels hard. Make sure you communicate the importance of being repaid. 

GOBankingRates: What should you do if a friend or family member asks for more money? 

Mary Hines Droesch: Remember that while helping a loved one in need is admirable, it’s important to think about what makes sense for your financial situation. If you’re able to help, be as upfront as you can about any money you hope to recoup.

If it’s a larger sum, consider setting up a repayment plan that alleviates any uncomfortable situations down the line. At the same time, you should feel empowered to say “no.” Turning down an ask for more money doesn’t mean you don’t care. It just means you’re protecting the relationship and your own financial well-being. 

Alternatives to Lending Money to Friends and Family

GOBankingRates: What is a better alternative to lending money to a friend or family member?

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Mary Hines Droesch: If you aren’t in a position to lend family or friends money but still want to help, you can share money management tips and be a listening ear to show support. Learning to budget and figuring out how to build up savings takes time, so having a sounding board while maneuvering through this new territory can make a big difference.

GOBankingRates: Should you set a certain dollar amount when it comes to requests from friends and family members?

Mary Hines Droesch: There isn’t a universal amount you should or shouldn’t lend your friends and family members. It’s best to first look at your finances and understand what you can afford to lend. As an added measure, think of the worst-case scenario. If the borrower were to default on the amount you’re lending, is this an amount you’re comfortable “forgiving”? If not, you may want to reconsider lending money or the specific amount you can give. 

Protect Your Finances

GOBankingRates: How should you approach the situation if loaning someone money has put you in a financial bind? Should you request the money sooner?

Mary Hines Droesch: If you find yourself in a financial bind after lending money to an individual, you can absolutely ask for the money sooner. Be sure to communicate your situation as soon as possible and try to arrange a plan or new repayment date. Often, open communication can do a lot to alleviate financial stress.

Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.

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