Common advice says to not mix money and family.
Whether it’s splitting up an inheritance or borrowing money that is never paid back, financial issues have destroyed families. Now, there is something to be said that we only hear the negative stories; the times when things go wrong.
Today I want to ask: should you ever loan money to family? If the answer is yes, under what condition should you lend money to a family member?
My experience lending money to a family member
When I was in high school I went to school about 17 miles from my parent’s house. It was a private high school and my classmates lived all around the metro area. The drive wasn’t fun, but we made it work. Because we lived so far from high school, my parents provided us with one vehicle to share between my sister and myself. There was one problem: the only thing my sister and I ever argued about was the car.
When you’re a junior in high school and your sister is a senior, sharing a car with your sister just doesn’t work that well. Thankfully we made it through that year, but there was one problem: Summer. In the Summer we were both coming and going between our jobs and spending time with friends that it created a real problem for us.
I worked at Pizza Hut and being the frugal person I was, I saved a decent chunk of money. My sister didn’t work as much as I did because she was involved in sports pretty much year-round, though she did work on the weekends. She didn’t have quite enough money for a car, though, so I thought of a solution that would benefit us both: I would loan her money for a car.
You see, if I gave her a loan to provide her enough money to get a car then we’d each have a car and would never fight over it! I wrote up a payment plan and gave her a loan at 0% interest. Losing the interest was hardly a sacrifice considering the freedom I had from not having to share the car.
How did it work out? She made all the payments as scheduled and we both happily had cars we could call our own. I think we were both on the same page as to the purpose of the loan and we both knew she would have the income to pay it back. I certainly had motivation to make the loan. It wasn’t a very big loan, which might have made it more likely to end well.
Lending money to my sister worked for me and I think there are situations today that I would loan money to a family member. At the same time I think now that all my family members are working adults I don’t foresee a situation where this would happen anytime in the near future. I think if a family member hit hard times I would be more likely to help them out in other ways, such as giving them a place to stay for a pre-determined amount of time, helping them in their job search any way I can, etc.
This is a touchy subject for some people who have had bad experiences so I definitely can understand why some are completely opposed to lending money to family members.
I want to hear your thoughts on this topic: Have you ever lent money or taken a loan from a family member? Would you ever loan money to a family member?
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For the most part I say no but there are a few family members who if needed help I wouldnt think twice about doing it (if we were able to). However I would always lend money under the assumption I may not get it back and for a few select people that’s fine by me.
PlungedinDebt I think that’s the best way to approach it. It would also be best to keep the loan amount low. Unfortunately I think if people need money enough to ask it’s usually not just going to be $50.
My family? Oh dear Lord, no. LOL. If a bank wont loan it to you (even with a cosigner), then I’m certainly not giving you money!
fitisthenewpoor In my situation I think the bank could have lent her money, but it was easier for me to just lend it to her. Honestly it was a while back so maybe we just didn’t think of that haha.
Yesterday my Aunt asked me if I can lend her money, she badly needed it so I gave her the amount that she needed. I’m aware that maybe she wouldn’t pay me back, but I will surely understand it.
Clarisse @ Make Money Your Way Sometimes people need the money and it’s understandable that you don’t expect to get it back. Hopefully she is able to pay you back, though.
I don’t believe that we would because it can so easily mess things up if the person doesn’t repay on the loan. We’ve spoken about it and if the person is really in need and we have the means to help them we’d much rather just give them the money without expectation of being paid back. If it’s family, we’d much rather have what they need as opposed to having something hanging over them. Hopefully though, it’ll never come to that though. ;)
FrugalRules That’s a good way of approaching it I think. I think if you loan someone money they will be more prudent with it than if it was given, though.
I don’t think I would ever lend a family member money. There can be enough struggles to maintain relationships among family members without bringing money into the picture!
colormefrugal I definitely understand your perspective. It’s much easier when money is not mixed with family relationships.
That’s a pretty impressive story and I’m glad she paid you back!!! I don’t think I’d loan money to either sibling unless they were in a life or death situation. The comment box isn’t big enough to explain why lol.
BudgetBlonde Haha fair enough Cat : ) Yeah it worked out really well for us!
There’s only one family member that I would lend to and that is because she rarely borrows from anyone. The only time I can remember she actually could bail herself out with her savings but it was too much hassle to access so she borrowed from me instead. The rest as to borrow money from others far too frequently. I tell them no otherwise I become the constant go to person to borrow from, which doesn’t help them or me.
Debtbustingchick I think it would be difficult to have family members who were constantly asking for money. I think money being lent to family members should be a rare thing and only under certain circumstances.
I have done it a few times and with not issues. The difference is that we made contracts and outlined all of the terms. I think that laid the groundwork to make sure we were all on the same page.
DebtRoundUp That’s the same approach I took. My sister and I outlined the terms and expectations, and HOW she was going to use the car to pay me back (i.e. easier to get to and from work, pick up shifts with short notice, etc.).
I know that I will loan money to my kids when they get older.. But that’s a parent/child thing, and is a bit different. If one of my brothers needed some cash.. It would be a much harder sale. They don’t really have the best history of good financial decision making..
seedebtrun I hear you on that. I do think I will lend money to my children at some point. I don’t have kids, though, so I haven’t thought about it too much ;)
I’ve heard too many horror stories about people loaning money to friends and family. The consensus seems to be that if you’re willing to never be paid back, go for it.
brokeandbeau Haha yes that does seem to be the consensus.
I think it really depends on the person. My immediate family members, I would no doubt lend money to them. They all live frugally and if they need a loan, it probably means that it’s an emergency. I’ve loaned money to other family and friends and I have been paid back, but sometimes I’d have to prod them which I don’t like to do. This was back in my college days and I used the excuse that I REALLY needed the money back.
Andrew LivingRichCheaply Haha it’s too bad you needed an excuse to get them to pay up ;) I’m glad you’ve had good experiences lending money. I think it would be the same situation for me now where I would only be asked if it was an emergency.
Wow! First of all, I read your title and thought “Eek!” and was nervous throughout the entire post waiting for the “shoe to fall.” I am excited for you that it worked out well. As for me and my husband, we both loaned money to siblings that was never returned. And the tough part about loaning money to family is that you can’t avoid them. They will be at every holiday, wedding and funeral and you are reminded constantly about the poor financial choice you made because it is sitting across from you at the Thanksgiving table.
blonde_finance I agree. I’ve seen that too many times and I try to avoid it. Who needs the drama if they don’t pay you back!
Raquel@Practical Cents blonde_finance I can’t disagree with you two on this one. It certainly seems best to not loan the money unless you are 100% okay with not getting paid back.
I’m glad to hear it worked out for you. I’ve never loaned money to family but if I did it would probably be under two conditions: 1) Drawing up terms just like you did, and 2) Being okay if I never saw the money again. Hopefully it would work out like your situation, but I wouldn’t want to be in the position of needing the money back and having trouble getting it.
Matt @ Mom and Dad Money Those are definitely two good conditions. I think it really has to be a special case, too, where the other person has absolutely no access to money and/or it’s an emergency.
I’ve had really bad experiences loaning money to a certain family member (I think you know who I’m talking about) and it has completely ruined out relationship since it has not been paid back (we’re talking A LOT of money here – from the money that my dad left me after he passed). I was taken advantage of when I was a kid.
However, I do think that in some cases it is okay. I lend money to my little sister all the time to help her out with her schooling, but I am the one raising her (so, I’m like her mom) and she has no one else to turn to. She has always paid off her loans on time as well.
SenseofCents That definitely makes sense that you would loan money to your sister. I think if I was in that situation with a younger sibling I would do the same thing.
My spouse firmly believes that family lending should only go older to younger, ie parents to children. I don’t agree that much, I believe it depends a lot on the person and the relationship that you have with that person. For example, I am confident that I could lend my brother money (he will have to buy into a practice, so that may be in the cards in the future). My spouse has seen family relationships go sour over money from wills, etc. though.
Ugifter I definitely think it should be a “case-by-case’ basis. For the loan I made to my sister, we both won. I saw it as an investment in my freedom (no sharing a car!) and helping her get from point A to B and work more because she could take on shifts with short notice.
Always a tough one. I’ve come to conclusion after working with clients and some personal experiences that if you decide to give money to someone (family member, friend, co-worker) do so with the mindset that you will not get the money back and need to be okay with it. If the thought of never getting the money back and still regularly seeing this person bothers you immensely … then don’t give the loan. Or draw up a contract and be willing to enforce it, which can also be incredibly uncomfortable, even though it’s obviously your right to do so. I’m glad your loan to your sister worked out so well. It can work out beautifully and be an immense help. I suspect, deep down, we have a good idea of someone who just needs a little help and will get back on track (and pay us back) and those who have a long history of unwise money choices and asking for money with no intention of paying it back. Parents really struggle with this when it’s their kids.
ShannonRyan Well, it certainly sounds like there’s no easy way to loan money to a family member! I appreciate you sharing your insight from working with your clients.
I have never loaned money to a family member, but if I did I’d have to be cool with never seeing the money again because that is often how the story ends. As for having a written contract, that sounds smart and everything, but are you really going to take a family member to small claims court for breach of contract?
Kyle James That’s a fair point. My sister and I didn’t write up a “formal” contract but it did say how much she’d pay me back each month. I wouldn’t have taken her to court but I knew (or assumed) it wouldn’t come to that.
I would have to take it on a case-by-case basis. I would loan or give a family member money for a surgery or food, but not for a new Mustang =)
Holly at ClubThrifty Haha I want a new Mustang!
I would definitely need to do it on a case-by-case basis. Also, I’d most likely ask them to show me their budget before I ever gave them anything.
AndrewDontPlay I think that’s fair. My sister and I had a plan from the beginning which is why I think it worked out so well for us.
That’s great your loan to your sister worked out so well. I don’t have any siblings, and I’m not extremely close with my cousins, so I don’t think a situation would arise where anyone in my family would ask me for money. If, somehow, my parents or grandma needed anything, I wouldn’t have a problem helping them out. They’ve done so much for me and we have a great relationship, I know they would make every effort to pay me back.
I would probably never loan money to my family members. If they needed money I would just give it to them. I wouldn’t expect anything back in return.
TheButlerJournal.com That’s fair and probably the best approach. I had an “interest” in helping my sister in this case. I think it was actually my idea haha.
Glad it worked out for you David. I loaned money to my sister and unfortunately a lot of her YOLO way made me resent it. Never again.
Charles@gettingarichlife Come on Charles, you have to embrace YOLO! Okay, maybe if it’s your own money on your own YOLO activities ;)
Glad things worked out OK. I wouldn’t loan money to a friend or family member, but I would give them the money if they needed it. If you loan the money and then don’t get it back it can really leave a bad taste in your mouth (and possibly ruin your relationship), if the expectation is you’re giving them the money and they happen to pay you back, it’s just an added bonus. For that exact reason I don’t lend/give money I can’t afford to lose.
I wouldn’t, except to my sister because I know she would pay back. Other members I don’t care if they would or not but you still have to see them around, whereas if you lend money to a friend and he doesn’t pay, like Isabel Allende said “it was money well spent if you never see them again”.
We’ve loaned money to family members and they’ve always paid us back. We’ve also borrowed money from family members, and we’ve always paid it back. While I can understand how the situation would get “sticky,” it’s worked out just fine thus far….
DebtChronicles Good to hear! It worked out well for me in the past as well. We’ll see if a situation arises that would require it in the future, but I think as long as you are both on the same page it can work out.
I think lending money from a family member sometimes not working out actually and
if u are not able to return the money within scheduled time it may ruin the relationship.
Also u can”t force the money lender to give back ur money as he/she belongs to ur family,so i am not supporting to borrow money from family members.
But beside this we need to support our family members when they are in a great crisis
as we dont have to loose our family bonding by means of money.
I have borrowed from family and paid back every dime. I have lent to family and I’ve been paid back and I’ve been burned. As a rule, I don’t lend to family, it’s just too messy and most of my family members don’t have a track record of paying things back.
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