Lending is a serious business. There will always be people who will want things beyond their limits, which in turn, makes credit card companies and banks richer. I am not going to talk about good loans and bad loans. But, the kind of loan that is swept under the rug. The loan we give to our friends and partners because they were cash-starved for reasons within and outside their control.
I don’t know why but people find it incredibly easy to ask money from me. Friends who earn four times my annual income, friends whom I have not met for four years, friends who lose money in a gamble and of course, friends who need money to buy groceries and there are other sorts of people as well.
I was annoyed with it. So much that it figured in my ‘not-to-do list’ with smoking and drinking. After all, after a few NPAs, it had too. If you can make money your slave, you will always find people asking money from you.
We always think that if we are friends with someone, we should help other people with money. Now, I believe there are two exclusive things. One should not mix friendship and money. It is disaster in making.
So, here are the five things that I ask myself before lending money to anyone. You can use before lending money to your friends.
Have they lent money when you needed?
I am a staunch follower of the ‘give and take’ policy. If they have helped you when you needed money or other things, you need to help them out. If they were there when there was no one, lend them. No question asked. However, it should be limited to a few transactions.
What’s the reason?
They need to give you a reason. In this step, it is better to think like a bank. Grill down with questions till they give you a satisfactory answer or two. After all, it is your money. You need to know where your money is going. No shame in that. If it makes your friend becomes uncomfortable, then tell him or her that you are equally uncomfortable lending money.
How frequently have you lent money to them?
Are they serial borrowers and reappear on your phone during the last part of each month. If so, you need to stay away from them. They have bad money habits and they are spending more money they earn. It is most likely that they have borrowed from all the other quarters of their life and they have mountains of debt piling on them.
When are they planning to return?
When they are planning to return your money is another question you need to ask the prospective borrower. They are most likely to say that they are going to send after they receive their salary. You need to ask when is their pay day because it differs from company to company. If they haven’t paid, send them a gentle reminder. Don’t wait for too long or they could have already used it as well.
Will you be okay if you don’t get the money back?
Someone may ask a thousand bucks and it may not mean much to you. But, if you lend someone 10k, it may pinch. You need to ask whether you will be okay living without getting your 10K back. If not, then you should not lend. It will be better to put in an FD or mutual fund or lend on a P2P platform.
You can keep these five things in mind before lending money to your friends. Money is money, friendship is friendship. It is better not to mix the two.