5 Dos and Don'ts When Lending Money to Loved Ones

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Let’s face it: Money is tight for many people. And if you have loved ones in your life who are struggling financially, you may feel inclined to help them.

If you do, proceed with caution. ​​According to a 2022 CreditCards.com survey, 42 percent of people who lent money did not get repaid, and about half of Baby Boomers and Gen Xers said they

got burned in such transactions.

“One of the most common mistakes people make when lending money to family and friends is expecting to get it back,” says Nate Towers, director at Five Pathways Financial, a retirement

planning firm in Phoenix. “If you're going to lend money, you should assume that you might not be repaid. If you're OK with that, then go ahead, but if not, you need to take steps to protect

both parties involved.”

Are you considering loaning money to a loved one? Heed these dos and don’ts to protect yourself.

Before you choose to loan money to a friend or family member, think about the potential repercussions it could have on your relationship with them. According to the CreditCards.com survey,

more than a quarter of people who lent money said it damaged their relationship with the borrower.

“Ask yourself what will happen if the loan isn’t repaid,” says Matthew Argyle, a certified financial planner and principal at Encore Retirement Planning in South Jordan, Utah. “Can you

sacrifice the funds without sacrificing the relationship? If they fail to repay, will you sue them? Will conflict and resentment ruin the relationship?” Bottom line: weigh the risks before

opening up your wallet to a close friend or relative.

You should also be careful how much cash you loan someone. While it might be nice to help your loved one cover the entire cost of whatever expense they’re facing, limiting the loan to what

you can reasonably afford is important.

“​​This is one of those situations where you need to ask yourself, ‘If I don’t get paid back, will I be OK?' " Towers says. “Be honest with your answer. If you lost 100 percent of what

you're lending right now, could you handle it? Would it affect your financial stability in the long run?”