Ask Google if you should lend your friend money and the consensus among finance writers and internet know-it-alls is an emphatic no: it’s awkward, you probably won’t get it back and it’s not worth destroying a friendship. But the basis of friendship is mutual support – and sometimes this requires a financial bailout. Given that money woes are a defining trait of our millennial generation, lending each other cash has become a linchpin of modern friendship. That said, you have to take special care to ensure it doesn’t drive a wedge between you.
Ngoni Chikwenengere, 26, founder of We Are KIN, lent a close friend £1,000 a few months ago when she was struggling with rent. "She hasn't paid me back yet. Texts have gone unanswered and I'm awkward with money as it is. I don't like having to chase," Ngoni says, adding that regrettably their friendship is now over. When dealing with close friends – especially those privy to the ins and outs of your finances, like your salary and savings – it’s easy to feel obligated or even guilt-tripped into helping them out of sticky situations.
Given the relatively large amount of the loan, Ngoni admits having had reservations from the start, but her friend was in a tough situation without familial help. "It came from my savings so no personal sacrifices were made but it makes me very uneasy. It’s enough money that you'd want it back, especially if you’re self-employed. You always want your savings to be healthy." While less forgiving friends have suggested the small claims court or a public bashing, Ngoni says she’d "prefer to just learn a lesson – it’s only money."
But having previously always felt happy giving friends loans – most of them are also freelancers, for whom late payments can lead to cash flow issues – Ngoni’s recent thorny experience has made her trepidatious going forward. Nowadays, "It depends on the friend. If it's money I can live without or can gift that’s one thing, but larger sums will require a solid repayment date set in stone."
Even with openness and honesty between you from the off, without solid repayment terms, money lending can still blight friendships. "A few Christmases ago a friend was lamenting how broke she was," recalls 38-year-old Elena*, a decorator in London, noting that the friend was known for scattiness. "I offered to lend her money and she said that would really help. I was clear – I said, 'I'll lend you this and you can pay me back gradually as long as you keep track of it'."
Immediately, Elena transferred her friend £500, emailed to let her know it was in her account and outlined her repayment terms and her own bank account details. "I never even got a thank you." Six months passed and she still hadn’t received a penny back – despite her friend being in work at the time – so Elena gave her a nudge. "She was blasé about it and said, 'Oh, send me your details again'. I thought, why should I be chasing her? It didn't seem to bother her one bit while it was driving me mad. I began to fear it would become a bad debt."
Judgements and strong feelings around money abound – and are thankfully being discussed by writers and influencers more openly of late – and Elena’s grievance extended beyond her friend’s carelessness. "She comes from a nice middle class family and I know it makes me sound awful, but that’s what came to my mind. The money had come from my hard earned savings." A year and a half later, fearing she’d never get her £500 back, Elena raised the issue with her friend. Again. "I said, 'I’m worried you won’t pay me back at all,' so she borrowed the money from her parents and paid me back. No 'sorry', no 'thank you'."
Saying all this, the incident didn’t deter Elena from lending to other mates – two friends have paid her back £200 and £100 in the last few weeks. While she is "still close" with her scatty friend, Elena won’t be making the same mistake with her again. "I hated that I looked like the bad guy for asking for my own money back every six months. I honestly believe if I’d said nothing, she’d have forgotten about it altogether."
We’ve heard what happens when loaning friends money turns sour, but how best to do it right? First, of course, work out if you can afford the amount – is it £50 or thousands? "Is it spare money you have hanging around in cash or an easy access savings account? And is it money that you’re definitely not going to need in the foreseeable future?" says Lynn James, personal finance expert and founder of Mrs Mummypenny.
Next, consider the friend in question (be honest). James suggests asking yourself: "Do you 100% trust that your friend will pay it back? And how would you feel if they didn’t? Would this be the end of your friendship or are you prepared to let it slide?" If you’re having doubts, don’t lend the money unless you’re prepared to not see the money again.
Ask what they need it for. Find out if there’s anything wrong (could they be dealing with debt problems, emotional spending or a shopping addiction?) and if there’s any family they could ask, recommends personal finance guru Bola Sol. "If the person doesn’t want to answer then I’d consider saying no. If I found out after I’ve lent money that it was for something I considered a frivolous expense, I’d be pissed." Rent money, a cash flow crisis or a broken car? Fair enough. A cute new dress? Less so.
Consider also how you’ll feel watching your friend spend "your" money. "When a bank lends you money, it doesn't usually get upset about the fact you've gone on holiday to Greece and bought some Arket jeans before you've repaid your credit card in full," says journalist and author of Money: A User's Guide, Laura Whately. But as someone’s friend, you may start to feel aggrieved if they appear to be spending on things you consider frivolous while they have outstanding debt to you. If you know you’ll be annoyed watching them doing their own thing, Whateley suggests: "Make it clear at the outset, otherwise agree a point at which you expect to be repaid, and don't get pissed off before that date arrives. It's not for you to judge how they are spending."
The same goes for your general approaches to money – mull this over before any money changes hands. "If your friend has a completely different attitude to money than you – if they’re a wild spender, while you’re a careful saver – then think twice about whether you want to lend, too. Money is so laden with value – you may find the way your friend spends deeply disrespectful while it might not have even occurred to her that you would be upset by her choices."
Then – this is crucial and recommended by James, Sol and Whately – set solid terms and conditions for repayment. "Agree how the money will be repaid, over what period of time and how much each month. Get a standing order set up for the payment to come to you automatically. You don’t want the admin of chasing a payment every month."
You could even make a contract outlining the repayment terms and whether you expect any interest on the loan. Sol concurs: "Love doesn’t pay the bills and neither do assumptions. Don’t make lending to a friend solely about the relationship you have with them because it’s easy to take advantage of the people you love the most."
Lastly, Sol recommends having a friendship check-up, particularly if they’re a valued friend. "Let them know that you don’t want [the loan] to change your friendship and you still care deeply for them." You could even suggest being each other’s financial accountability partners going forward.
When done well, lending money to those closest to us can bolster those relationships. "I’ve historically felt strange about lending friends and boyfriends money, worrying that it would be awkward if things go wrong and I have to ask for it back," admits 29-year-old Simone*, a lawyer in London. So loaning her fiancé £5,000 recently for business cash flow purposes was a big deal.
Simone knew why he needed the money, that she could trust him based on his track record, and, being in a well-paid job, she also knew she wouldn’t starve. But the loan was still the most money she’d ever transferred anywhere in her life, and the risk of a fallout over finances is high in intimate relationships. Simone is optimistic it will only consolidate their commitment. "Hopefully the trust that we will both support each other when times are tough will make our relationship and marriage even stronger."
*Names have been changed