Should you loan money to a friend?

It can be awkward when a friend asks to borrow money. Here’s how to make that conversation and decision easier.

My friend Taylor spent years lending money to his childhood buddy and then-roommate, Alex. Over the course of two years, Alex borrowed thousands in cash and rent payments from Taylor. Their relationship suffered; Taylor felt resentful toward Alex, particularly when he saw Alex spend money on other things, such as concert tickets, while he still owed Taylor the large sum.

Thankfully, this story has a happy ending: Alex landed a higher paying job and was immediately able to cover his fair share of the rent, plus he started paying back what he owed to Taylor. Nine months later, they were squared up. This all occurred more than three years ago; today, the two are still roommates and close friends.

But not every situation ends like Taylor’s. What should you do if a friend asks you for money? There’s no right or wrong answer: It’s all about what you’re comfortable with. Consider the following points to decide what is best for you.

When it may be OK to say “yes”

  • When you are in a good financial position to provide a loan (for instance, you have no debt, have a good emergency savings, and can afford to lend what your friend is asking for).
  • When have complete and total trust in the friend who is asking and their ability to repay you.
  • When you understand and feel comfortable with the purpose of the loan.
  • When you know that lending this friend money will not negatively impact your relationship with them.

If you decide to loan your friend money, it’s important to ensure that you’re on the same page. Talk through details, such as the time frame for loan repayment, if you are charging interest, and if you see this as a one-time loan or one of many. Then, spell everything out on paper so everyone signs off on the terms of the loan — and to protect yourself if circumstances change and the friend is unable to repay you.

When you transfer the money, make the process quick and easy with Zelle®. You can send money using just a phone number or email address and complete the whole transaction from your mobile banking app. With Wells Fargo, records of your Zelle transactions are accessible via online banking or the mobile app, and you can make a note about what the payment is for. Just know there’s a transfer limit of $2,500 per day.

If you’re the borrower, you can also use Zelle to request money — making that reminder a little more direct.

 When to say “no”

  • If you are not in a good financial position to provide a loan.
  • If you have loaned this person money in the past and haven’t been repaid.
  • If you feel it would strain your relationship.
  • If you feel uncomfortable for any reason at all. In this situation, there’s no such thing as a “bad excuse.”

Gently tell your friend that you simply don’t feel comfortable lending money. You’re not obligated to give a detailed reason. Financial matters can be complex and personal, and your friend should respect your decision.

Show your friend how much you care by offering them support in a different, non-monetary way. You can invite them over for a meal, offer to spend an afternoon couponing, or help them review their resume for a job search. Also, be sure respectful of their finances when making plans. A little bit of kindness can go a long way.

Request and send money with Zelle.

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