The best way to lose hard-earned money is to lend it. Nobody knows exactly why the rate of “non-repayment” is so high when people lend money to friends and family, but I would venture to say it comes down to just two factors:
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They won’t be able to pay you back, even if they want to.
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They had no intention of paying you back at the moment they asked to borrow the money.
When someone asks me to lend them money, my default answer is NO. I don’t need to look for excuses like “it’s not a good time right now” or “if only you’d told me two months earlier…”. You shouldn’t be afraid or embarrassed to say clearly: “No, I’m not one to lend money,” given that the other person wasn’t embarrassed to ask you.
As I explained in a previous article, I have made exceptions to this rule, and in 50% of those exceptions I lost both the money and the friend, which reminds me not to make too many exceptions. If, despite what I’m about to say, you decide to lend money, take a look at our tips on how to do it first.
If you are going to be my friend and you plan to ask me for a loan, the odds of success are extremely low, especially if you meet any of the criteria I’m about to list. Think about this too if you’re considering lending money to someone.
That person has parents, brothers and sisters, cousins, friends, and there are banks. Why are they asking you for the money? Most of the answers are exactly the reason you shouldn’t lend it to them if you don’t want to lose it.
Reasons I won’t lend you money
1. They refuse to get a job – any job
Bear in mind that between having a bad job or a badly paid job and having no job at all, the first two options are better.
2. Their lifestyle can’t be paid for out of their income
A while ago an acquaintance told me that you can tell when people earn a lot of money, because they have a nice car, they buy bigger houses, and so on. A few weeks after that conversation he was asking me for money, and of course I didn’t lend it to him, because according to his theory he has more “money” than I do: his car is more luxurious than mine, and his house is worth more than mine.
According to my theory, he doesn’t have a car (he has a debt he is still paying off), and he doesn’t have a house either (he has a mortgage). Under those conditions, lending him money carries a high risk.
See also: 5 signs you are living beyond your means
3. They don’t understand that debts are a mortgage on your immediate future
Someone without the most basic financial education is a high risk when it comes to repaying a loan.
4. They refuse to raise cash by selling some of their “toys”
The thing is, that person isn’t willing to sell something that cost them €300 for €200, but they are perfectly willing to have you put €200, €300 or €1,000 at risk. Bad investment.
See also: Financial education in 15 very easy points
5. They blame others for their poor financial situation
Clearly they don’t understand the basics: your personal finances are your own business. They might also blame others when it comes to not paying you back.
6. His wife has Louis Vuitton or Prada handbags and accessories, or designer dresses
And you both have the latest iPhone. Clearly their poor financial situation may have a lot to do with their urge to keep up appearances.
7. They have addictions or a gambling problem
I don’t like having a drunk around me, because of everything their behaviour says about them. So imagine lending them money. And if we’re talking about gambling, you are probably neither the first person they have asked for money nor the first person they won’t pay back.
8. They use the line: “You’ve got money, you can lend me some”
I have money because I don’t lend it, and often, if you lived making some of the sacrifices I have made, you would have it too.
9. They can’t tell a need from a want
Some people talk about redoing their kitchen or changing their car (even though the car was working fine). Those aren’t urgent needs; they’re wants.
10. They don’t know how much they spend each month or what they spend it on
People who are disorganised about their finances rarely end up doing well financially, because when they earn more they will spend more, and they still won’t know where the money is leaking out.
11. They’re the “you only live once, so enjoy it” type
For that person, life may be short; as for me, I hope to last another 50 or 60 years, so my idea of enjoying it is different, and you’re not going to screw that up for me.
In many cases, you are facing someone with no financial knowledge and no interest in acquiring any, but proud and showy about the life they lead, even though they are drowning financially. And for some reason, this person, who has never built an emergency fund, never had a savings strategy or a frugal lifestyle, a poor planner, expects to hand their problem over to you and create an emergency for you, along with a sense of guilt if you don’t cover theirs.
That said, I am sure that in many cases the person has the most sincere and honest intention of paying you back. But someone who has done nothing to climb out of the hole reaches a point in their finances where, if today they lack the €300 they need, in a few months they will probably have a €600 hole.
In many other cases it’s simpler: you are being asked for money by a social climber who hasn’t the slightest intention of paying you back.
See also: 6 things the middle class doesn’t quite understand about the rich
Featured image: Broderick, Thomas, CC0 1.0, via Wikimedia Commons.
