Recently updated on: December 11, 2023
Lending money is one tricky subject because it can make but more likely break relationships.
As a personal rule, I don’t take loans from friends and family members, and I’m incredibly cautious about lending money.
Sometimes, I may appear stingy or kuripot, but I’ll take it as a compliment.
How often have we heard or read stories of broken relationships, including family, friends, and co-workers, because of unpaid debts?
So, by limiting the potential problem caused by debt, I am also narrowing the possibility of these damaged relationships.
Money topics, including the debt cycle, are uncomfortable topics to discuss in a typical Filipino setup.
However, these topics must be addressed earlier to stop the rat race cycle.
Though it may appear normal to get into debt, I promise you it’s not! And if you’re a fresh graduate or a single young professional, you must learn how to avoid stepping into the debt trap.
Personal finance is one of the advocacies of this blog, so I’ll share my thoughts when someone asks if they can borrow money.
The Book of Proverbs and other books of the Bible offer many snippets of wisdom about money, which, if applied, will change our perspective about the uncomfortable “M” Word.
“The rich rule over the poor, and the borrower is a slave to the lender.”
Proverbs 22:7 (NIV)
The Importance of Saying “No”
But before we dive into the five considerations when lending, I’ll reemphasize the importance of saying “no.”
If someone asks to borrow money, your default answer should be “no” unless they managed to pass specific criteria.
It is also important to note that you don’t owe any explanations when declining their request.
Don’t imitate other people who choose to lie instead of saying no because it makes them feel uncomfortable.
My Stand Against Lending with Interest.
In the times when I lent money, I never asked for interest. I believe that it is usury and is just morally wrong, even if disguised as helping others.
“Whoever increases wealth by taking interest or profit from the poor amasses it for another, who will be kind to the poor.”
Proverbs 28:8 (NIV)
Five considerations before lending a considerable sum of money:
1. Your Relationship
The first consideration is how close your relationship is.
Are you good friends or mere acquaintances? Are you an immediate family member or a distant relative?
Who you lend to should depend on your personal experience with them regarding paying off debt.
It is essential to remember that what you are lending is more than just money. You are adding the virtue of trust along with it.
2. The Amount
The second consideration is the amount that they are trying to borrow.
I have a maximum amount that I am willing to lend. Doing so gives me control of my budget.
I also don’t lend to multiple people at the same time. So, as long as a previous borrower hasn’t paid yet, I will not entertain other borrowers.
I simply tell them that I don’t have any money that I can lend at the moment.
3. The Purpose
The third consideration is the purpose of the loan.
Is it for health, personal emergencies, or just for ‘wants’ like a new pair of shoes or travel expenses?
If it’s the latter, it’s definitely a ‘no.’
The purpose of the loan is very important. Others may say that the lender doesn’t have to know where the borrower will use it since they will pay it anyway.
However, since I will not gain any interest, I maintain the right to ask about the loan’s purpose and determine whether it is valid.
You may refer to my other budgeting posts to help with your finances.
4. What are the Specific Details
Once the first three considerations are met, then we can talk about the specific details.
It is the borrower’s responsibility to be true to their words and pay what they borrowed.
So many people’s trusts were broken because of the unfulfilled promises about agreed-upon payment terms.
I also think that the loan payment date should be the borrower’s decision. So, it is the borrower’s responsibility to keep their promise.
It is better to say that you don’t know when you will pay instead of giving a false promise of paying next month.
As a protection for both parties, putting the agreement in writing and notarizing it is a good idea.
5. Are There Other Options
If the amount I allocate for lending is currently deployed, I will still try to help through non-monetary ways. However, I will not do the following:
- I won’t borrow money on other people’s behalf.
- I won’t participate in being a co-maker or in collateral programs.
- I won’t join any multi-level marketing groups.
Final Thought:
Lending money, especially to close family members and friends, is tricky.
So, it is best to lend money you are willing to lose.
However, it is also expected that the borrower will pay. Like in my #2 consideration, no one can borrow unless the amount borrowed is paid.
Lending and borrowing is bound by trust, and as the song “Tsokolate” by Parokya ni Edgar said, “Parang tiwala ‘pag naubos na, mahirap nang ayusin pa, ‘di kayang ipag-dikit ang tiwala ‘pag napunit.”
Remember that money is not the main issue in personal loans and debts. It is the relationship, trust, accountability, and integrity that go with it.