Borrowing money from friends is a slippery slope. Remember that Seinfeld episode, “The Puffy Shirt,” in which George says when Jerry offers to lend him rent money: “No, no, no, no. Borrowing money from a friend is like having sex. It just completely changes the relationship.” Hard to argue with that.
“Friends borrowing or lending money can be a complicated issue that is wrapped in many emotions,” says Clare Dubé, a financial therapist in Madison, Connecticut. “There’s a reason why today we still quote William Shakespeare's famous line from Hamlet, ‘Neither a borrower nor a lender be, for loan oft loses both itself and friend.’"
While asking to borrow 10 bucks from your buddy for lunch because you left your wallet at home is hardly worth a second thought (considering you’re not habitually doing it), the larger the amount you borrow, the riskier things get. But this doesn’t mean you should never borrow large sums. Here are three times it’s okay to get by with a little (er, a lot of) help from your friends.
You have a solid relationship with the person
An acquaintance or someone you rarely speak to is not the best person to ask for a money loan. She or he should be a close, trustworthy friend for whom you would feel just as comfortable lending a few Benjamins if the roles were reversed.
Transparency is key. “When asking a friend or family member to borrow money, remember to be honest with the friend about the purpose of the money and why you need it,” says Dr. Melanie Ross Mills, PhD, a licensed temperament therapist in Dallas. “Your friend will appreciate your openness and may be more inclined to help you. He or she might even relate [to your situation].”
And don’t be embarrassed to ask for advice. “If you are asking a friend for money, you are assuming they have the funds to loan and most likely you see them as financially responsible,” says Dubé. “You may even ask [your friend] to look at your financial situation and help you create a budget.” This gives your friend the assurance that you’re not taking this ask lightly.
You’ve exhausted all other options
“Borrowing from a friend should be a last resort,” says Dubé. Even if your friend is known for being generous, you should never take advantage of that fact unless you’re genuinely in a bind. Dubé advises putting your request in writing. “State the amount you wish to borrow and the date you will pay the loan back,” she says.
According to Sacha Ferrandi, founder and head principal of Source Capital Funding and Texas Hard Money, the loan should be taken seriously and tracked as if it were a loan from a bank. “This helps keep both parties accountable and aware of how the loan is progressing. Are the payments being made on time or are interest rates starting to add up?” Keeping a good record will help prevent any resentment during the process.
You’re confident you’ll be able to pay the friend back—with interest, if necessary
It’s crucial that you meet the terms of your verbal or written agreement. “Make it a personal goal to pay off the loan earlier than stated,” advises Dubé. “And most importantly be a good steward with your friend's kindness. Do not go out and incur more debts or purchase things that may come across as wasteful expenditures in the eyes of your friend.” No splurging on a $200 handbag a week after you’ve received the loan.
Also take advantage of technology. “Think about making your payments quicker and easier by using a mobile app, like Zelle, to send money,” suggest Meredith Verdone, chief marketing officer at Bank of America. “Based on research from Bank of America’s Friends Again report, apps like this allow people to see money in their accounts right away, which is great for the recipient, but it also holds people accountable for what they owe.”
Finally, do some self-reflection. “If you find yourself needing to borrow from friends,” says Dubé, “this might be a good time to reach out to speak with a professional who can help you understand why you are falling short on funds and how to change your negative financial behaviors.”