Mixing money and family can quickly become a sticky situation and is pretty much never a good idea. The ‘loan’ becomes a ‘gift’ in no time at all. So what are the best ways to handle this situation? Well, I am glad you asked!
It’s probably safe to say either you’ve loaned or have known someone who loaned money to family and more than likely it didn’t work out well, and there are reasons why.
Open-ended Loans
Because there are feelings involved between you and your loved one, loans to family tend to be open-ended. The parties don’t reach an agreement for a timeline for ‘repayments’ and don’t include ‘interest’ on the loan; those ‘terms’ don’t make you ‘feel’ good about the loan, so you skip that part. You feel like the bad guy setting up payments because that implies that maybe you think your loved one doesn’t intend to repay you. Until that loan is repaid, there is a tension between you both that could’ve been handled the perfect way…by saying ‘No.’ Remember that ‘No’ is both an answer and an explanation. Think about it.
You and Your Loan Aren’t Priorities
When there is a discrepancy between the lender’s and the borrower’s incomes, the borrower may not realize that there is an urgency to repay the loan, nor do they care in many instances. It’s not that you as the lender need the money, it’s the principle that it was loaned in good faith and you expect it to be paid back for the same reason. Your family member knows that, should they not repay, there will be no repercussions, like late fees, high interest, etc. so there is no motivation to pay you back.
Asking for the Money Isn’t Easy to Do
It can be difficult to ask for repayment of the loan and may turn into a not so fun game, with phone calls made and emails sent, neither ever returned. As the lender continues to worry about the decision to make the loan in the first place, the borrower can develop hurt feelings over the insistent requests for the money to be repaid, making you both feel bad.
Family Gatherings Can Become Awkward
No matter how much you tell yourself you won’t have negative feelings for your family member who borrowed money when you see each other at family events, go ahead and expect that you will. It’s human nature to feel like you were taken advantage of because, if they haven’t addressed the elephant in the room, you probably have been. If the situation continues, probably one family member just won’t come to gatherings anymore, and that makes everyone uncomfortable.
The Borrower, Almost Always, Asks for More
Once you have loaned money to a family member, this person will almost always return when they need more money. In addition, if the word gets out that you are the family ATM, your generosity can be taken advantage of. Don’t become the go-to lender in your family…nothing good comes from it!
The Fine Line Between Enabling and Helping
When you lend money to a family member, although you may think you are helping them, you are giving them an easy way out of their financial problems. If you just can’t find the word ‘No’ in your vocabulary, try offering to help with one specific payment that is due, like the power bill. Pay that and move on! If they truly appreciate your help, this will be enough. If you are good with money, maybe sit down with the family member and help them with a budget. That will be more helpful in the future than continuing to hand out money.
Overextending Your Own Finances
What if, while you are waiting for the loan repayment, you hit hard times and need money yourself? You definitely want your money returned, but without a payment schedule or interest on the loan, what are you to do? Where do you go to for help?
You Could Lose Your Money and Your Relationship
If you loan money to a family member, you may not get your money back, and your relationship may never go back to normal. Over time, the tension between you and the borrower may lead to anger, guilt, and remorse.
Even though you want to be a good person and want to help your loved one, don’t lend them money if you can help it. Gently refuse the loan and determine how to best help, instead of enabling them. But if you can’t resist giving them money, don’t think of it as a loan, it is a gift, and you shouldn’t expect to be repaid. Think of it this way, sometimes loving someone involves doing something they do not want, but if you have their best interests in mind, you can have faith in putting the relationship first with a clear conscience.
