Should you lend money to friends?

Three friends sitting together on a couch

More than three quarters of people would be happy to lend money to a friend if they asked. It feels like the right thing to do when they are in a financial hole and you can afford to help them out. However, according to Topcashback.co.uk, only 11% of us trust them to pay it back, and 16% have fallen out with a friend or family member over money that was never repaid.

Before you part with any cash, therefore, there are five vital questions to ask yourself.

1. Can you afford it?
There's a world of difference between lending a mate £5 to get a cab home, and handing over thousands to get them out of a major debt problem. Whatever the size of the loan, however, the question remains vital: will handing over the cash leave you short?

2. Will they pay it back?
The survey showed that 49% of people would trust their parents to pay a loan back, 14% would trust a partner, 11% would trust friends, siblings or children, and 2% would trust work colleagues to repay the money.

Consider their attitude to money and how often they seem to fall short, and then think carefully if you're likely to see the money again. You may decide you're willing to lend the money anyway - regardless - but it's something you need to think through.
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3. What will you do if it is never repaid?
If you're expecting repayment, you should establish when they will repay it. If the cash isn't forthcoming at that point, you need to consider your strategy. Just over half of all people (59%) say they would be too embarrassed to ask for the cash back from friends, and 20% would feel uncomfortable asking work colleagues for it.

With so few people even willing to ask, the number who would go further and take legal steps to get the cash back is tiny. If you are lending on the basis that you expect to be repaid, but you're not willing to chase the cash, you could be landing yourself with a headache.

4. Can you afford never to be repaid?
Some 6% of people still lend the cash, even when they are entirely sure the other person will let them down. Many others lend in the expectation of getting the cash back, but it's never forthcoming. However, you get to this point, you need to consider whether you can afford to write the money off.

5. Can your friendship cope with something going wrong?
It is tough to turn a friend down when they need money, but it is possible to offer them other forms of support, such as helping them get assistance with their debts, or working with them on a budget. If you simply cannot afford it, your friend should understand.

You might feel pressured into lending it on the basis that your friend will never forgive you if you don't. However, given that 16% of people have fallen out over money that was never repaid, you stand a far better chance of maintaining the friendship if you refuse the loan and support them some other way, than if you lend money you cannot afford to lose, and your friend refuses to pay it back.

But what do you think? Have you ever lent money to a friend? Would you recommend it? Let us know in the comments.

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