Can you lend me £50 until the New Year?
It's a phrase we're all very familiar with - whether we're prone to asking friends and family to tide us over in the tricky last week of December - or whether we're used to hearing it from our loved ones. The question is what you should do. Is borrowing and lending among friends and family a good idea?
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It's certainly incredibly common. A study by flender.co.uk (which is developing an app to help people lend to friends and family) found that 74% of us have lent someone money in the past 12 months. And while some of it is £20 or £50 here and there, half of us have lent up to £500 and almost one in 20 have lent over £5,000. As a result, the social lending industry is worth an estimated £2.9 billion.
We lend for all sorts of reasons. One in five feel they have to lend when it's a relative that asks, while almost a quarter feel they ought to, and another quarter lend because their friend or family member is desperate for the cash.
However, the same study found that almost a quarter of people have fallen out with someone over a loan, so it's worth thinking hard before lending anyone money. There are seven questions you need to ask yourself
1. Can you afford to lend the money?
You need to think whether you can live without the cash until you are paid back. You also have to consider whether you are happy to lose the interest the money would otherwise be earning for your elsewhere.
2. Will you cope if the due date shifts?
If you are not paid back on time, will you find yourself strapped for cash?
3. Can you manage if the money never comes back?
For those lending large sums of money this is a very serious consideration. Can your finances handle a total loss if everything goes wrong?
4. Would you chase it?
If you can't handle a loss, and the other person could afford to pay you back if they wanted, you need to know whether you would be prepared to take steps to get the money back - such as taking your friend or relative to the small claims court.
5. Can you handle the change in your relationship?
A loan may initially make you feel closer, but even if it is repaid in full and on time it will have changed the nature of your relationship. It can easily introduce awkwardness and discord.
6. Can your relationship survive if the loan goes wrong?
If the loan is repaid late, or not at all, you need to think what it will do to your relationship.
7. Can you say no?
Saying 'no' will affect your relationship too, especially if the other person thinks you can afford it. One option is to try to think of other ways in which you can help. So, for example, if they need the cash to get their car mended before payday, could you lend them your car, or give them a lift? If they need the cash to finish buying presents, could you tell them not to bother buying for you and yours? If they need the cash for Christmas food, you can always invite them round to eat with you.
Money isn't always the only way to solve a problem, and an alternative solution may be better for your relationship in the long run.
But what do you think? Do you borrow from family, or lend to them and is there anything wrong with it? Let us know in the comments.