Consider This Before Loaning Money To Family Or Friends

Nothing sucks the air out of a room quite like a relative asking to borrow money from you. No matter how much you love your family, the prospect of loaning your hard-earned money to them can be uncomfortable at the very least.

How do you separate those feelings from cold, hard logic if someone you love asks you for a loan? Follow Suze Orman’s instructions.

I know. Orman drives me batty half the time for how black-and-white she is when it comes to financial matters. But a post on her blog has some solid advice for evaluating a friend or family member’s request for a loan.

Here are the three questions Orman says to ask yourself:

• Will a loan really help this person?

• Can you honestly afford to help?

• Are you comfortable thinking about money as a gift, not a loan?

The first has to do with the requestor. Are they really in a financial jam, or have they set themselves up for this trouble with repeated bad decisions? If this person has proven they’re generally responsible with money—or is making a marked improvement in order to be—you may find it’s worth helping them.

But the other two questions come down to you. If you drain your savings in order to help someone else, who will help you if you get into a jam and don’t have that cash? Are you so comfortable that you have extra money to give away, likely never to be seen again? That’s the third part, by the way. Orman says all loans should be repaid, but tracking down a family member for that cash you lent them could make you regret the whole thing.

If you do decide this person and their situation are worthy of a loan, make sure to put it in writing with a payment timeline. Yes, you should still treat the money like it’s gone, in the event of the worst-case scenario (like your cousin ghosts on you forever). But creating a contract makes it clear that you take your money seriously—and the borrower should, too.

This article has been updated since its original publication.