Harry Parker
by on January 23, 2019
204 views

By Kristin Wong

Welcome to Joint Accounts, a weekly advice column about money and relationships of all kinds. Have a question? Email jointaccounts@medium.com.


Dear Joint Accounts,
My friend’s boyfriend told her he wants to borrow $2,000 for an “act of charity.” What is a tactful way for her to handle that situation if lending money is outside of her comfort zone?
— Uncomfortable Friend

Right now, I’m betting at least a few readers want to lunge through the computer and urge your friend to say no. Personal loans have a sneaky way of changing relationships for the worse, and you don’t have to look very hard to find someone who’s had an awful experience lending to or borrowing from friends or loved ones.

Generally speaking, money can be a tricky thing to talk about between partners. Research has found that money is the biggest relationship stressor, and money-related arguments are a top predictor of divorce. Disagreements over finances can exacerbate other existing issues, in part because money is so inextricably linked to power. When you let a loved one borrow money — whether it’s a friend, boyfriend, spouse, or family member — it creates an awkward power dynamic in what should be an otherwise equal relationship.

A good partner won’t want to be a source of discomfort for someone they love.

If the loan is outside of your friend’s comfort zone, she has no obligation to explain herself beyond a simple “No, I don’t lend money to people, because it makes me uncomfortable.” A good boyfriend or partner will understand this and won’t want to be a source of discomfort for someone they love.

She can also offer nonfinancial support, if she’d like. There are hundreds of ways to lend a hand to someone who’s struggling beyond throwing money at their problem. For example, I’ve helped friends probe their budgets and audit their spending habits. Maybe your friend can help her boyfriend look for loans at a credit union or peer-to-peer service like Lending Club. If he needs a better job, maybe she can help him make a résumé.

That said, lending money doesn’t always end poorly. In the past, I’ve made loans to friends who were in serious binds, and I don’t regret it. But I did learn to establish some ground rules, the first of which is to go in with the expectation that you might never get repaid.

Years ago, I had a co-worker who was going through the most troubling time of his life. He literally couldn’t afford to keep his lights on. Once, when he was preparing for his kids to visit for the weekend, I offered to lend him a nominal amount so he could pay his electric bill on time. He said he would pay me back — and he did — but for the sake of my own budgeting, I was prepared to lose the money. It was worth the $100 to just help a friend who was struggling.

If you can still feel good about your finances and your relationship even if you never see your money again, then assuming that the loan isn’t really a loan will save you headaches down the road. If, however, the amount you’re being asked for is uncomfortably high, or if you think you’ll resent a friend or loved one for not repaying you, then don’t lend the money.

Another rule worth implementing: Give a deadline. While this rule seems to contradict the first one, it’s still important to set repayment boundaries for the borrower, even if you don’t expect to be repaid. Boundaries tell people there are limits to your financial generosity. It may sound patronizing, but even the nicest friend can become acclimated to acts of generosity over time — the bill comes for a shared meal, for example, and they don’t even give it a second glance. With a due date, you’ll also find it harder to be judgmental or upset when you see a friend buying stuff you don’t think he should be buying. You both know there’s a deadline for repayment, so in the meantime, how he spends his money is his own business.

Even better than setting a due date is drawing up a contract. In your friend’s case, $2,000 is a lot of money to lend! If she goes through with it, she shouldn’t be afraid to write down the terms of that loan and get her boyfriend to sign off. From your brief description, I’m a little confused at what the boyfriend asking — he wants to borrow money, but an “act of charity” suggests he won’t repay it. This is precisely why contracts matter.

A contract should include a few important details. First, will there be interest? Yes, it’s okay to charge a friend or loved one interest on a loan — after all, that $2,000 could be earning interest sitting in a savings account (not much, but not nothing, either), and a borrower would be charged much higher interest on a loan at a big bank or even a credit union. More important, charging interest gives the borrower an incentive and inherent reminder to pay you back.

Your contract should also include a repayment schedule. How often will the borrower make payments on this loan? And in what amount? You and the person you’re lending money to can come up with a reasonable repayment schedule together.

Finally, make sure to include that final payment due date in your contract. With these terms in place, there’s little question over whether you’ll get repaid or whether it’s an “act of charity.” It might all sound overly transactional, but money is transactional. If you want to preserve a relationship or friendship, you have to set clear boundaries. Otherwise — and perhaps better yet — just say no.

Posted in: Family & Home
1 person likes this.