How to Lend Money to Friends

Lending money to friends can create a lot of problems. It is different than lending money to family because a friend does not have a familial obligation to you. It is best to practice extreme caution when loaning a substantial amount of money to a friend.

Difficulty: Moderate

Instructions

1. Consider the risk. Before you lend money to a friend, realize that money can ruin friendships. It can make things uncomfortable between two friends who use to be very close.

2. Examine your finances. Never loan any more money than you can afford. The money that you loan should not burden you financially in any way.

3. Set the terms of the loan. Pick a date each month that he must give you payment towards the loan amount. Also, find out what the loan is needed for and if you will require interest from him.

4. Draw up a contract. Protect yourself and the best way to do this is to make up a contract with terms that you both agree on. Record repayment information and both sign the document.

5. Just say no. If you can't afford or feel concerned about the friend's reliability, tell the friend that you are unable to give her a loan. If she is a true friend, she will respect and understand your decision.

Tips & Warnings

• Speak to your accountant if you make a personal loan to a friend. Personal loans are taxable.
• If the loan is not repaid, you have the option of contacting debt collectors to help you get the money back.

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