Friends and Money: Where to Draw the Line and Avoid Conflict

My best friend recently asked me to loan her some money. She promises to pay me back right away, but I’m worried about jeopardizing our friendship. How should I handle it?

From the Editors of Las Fabulosas

Friends and money usually don’t mix: Even a happy friendship can turn into a sticky situation quickly when finances are involved.

Here, Cathy Pareto, MBA, CFP, president of Cathy Pareto and Associates, shares her tips for managing a loan to a friend from beginning to end.

Be Prepared for the Consequences
Before you lend a friend money, consider the possibility that you may not be paid back. “Do not lend money to a friend that you need yourself,” says Pareto. If the loan is never repaid, evaluate how you might feel if the relationship ends on a sour note. “If you don’t feel comfortable with that possibility, consider gifting the money or say no,” says Pareto.

Protect Yourself
“Treat the loan as a business transaction,” says Pareto. “Document the loan in writing, signed by both parties.” The document should specifically state the terms (amount, repayment schedule). Pareto suggests the loan be repaid over time rather than a lump sum, so it remains top of mind.

Be Honest
Talk about your feelings with your friend. You can both explore ways in which the loan can be repaid, even if it’s a nominal amount per month. “If your friend shows no interest in repaying the loan, give serious thought to the value of that relationship,” says Pareto. Treat it as a lesson you can learn from in the future.

Lauren Fischer is a freelance writer who has contributed to Woman’s World, People, Makeup Deal of the Day and SavvyMiss.com.