A priest and guru of mine wrote the following piece of advice that was surprisingly poignant on the topic of borrowing and lending money to family or friends in ways I have never pondered before. With his permission, I reproduce it here and let it speak for itself:
The most ‘current advice’ on the subject or lending money, especially to family or friends is “don’t do it.”
“Dollis latet in generalibus!” In plain English this means: “Deceit lies in generalities.”
In other words I disagree with this “current advice.” I would replace it with my epigram which suggests: “ Be just and generous, but don’t be irresponsible and stupid!” when it comes to helping a friend out.
If God has richly and abundantly blessed you, there can be no greater joy in life than to share those blessings with someone in need, especially if that individual sincerely and unsynthetically appreciates you enough to request your assistance. Such a request can be a humbling source of pride.
To deny his request would be to dismiss a coveted honor, especially if the request comes from a person who is discerning and judicious in how he spends his limited income.
However, one should follow the advice of St Paul who makes the distinction between: “ caritas ficta and caritas non ficta!” (“ficta” refers to someone who sucks up to you with only feigned and artificial “appreciation.”) St Paul also warns us to “beware of those who seek not you but yours (only for what you have and can do for them.)”
The major issue with loaning money is that it might lead to trashed relationships,
shattered finances and even trouble with the IRS. Moreover, folks who have indulged in “lending” complain about frequent recurrent ingratitude, delinquent payments and strained holiday dinners.
On the other hand, the person who borrows complains when their benefactor shows concern about cavalier spending habits.
For myself, I would like to be able to testify that personal loans don’t have to be disasters, but rather occasions of trust, fulfillment and allegiance. With the economic challenges of this ongoing recession. so many folks, along with the mounting number of job losses, there is an understandably growing number of folks who are going to need financial help. And this can be a haunting experience.
Borrowing money should not be the first impulse but rather the last resort after cutting out unnecessary expenses, looking for part time jobs and discontinuing irresponsible, capricious and impulsive spending habits.
Inevitably, today’s lenders will feel far more fulfilled when they are convinced that their money is not squandered frivolously or blown away foolishly. The appearance of wastefulness while a loan is outstanding is bound to send the message that the borrower is not taking the loan seriously. It seems too easy to forget that the lender is doing a favor when no one could or would, especially if the loan is interest free. Let it be noted however, while a personal loan may sound good in principle, it can also be problematic. It could also do harm if the lender is enabling a person to continue irresponsible spending patterns instead of being faithful to a demanding but reasonable budget. No one should be permitted to borrow on an installment plan and then stall on the payment plan.
Shakespeare once wrote: “ lending money is a good way to lose both friend and money.” Is that cynical or is it realistic. Perhaps lenders should remember that no one should “test the water with both feet” and thereby unconditionally extend a personal loan. If the conditions are right, it might be better torespond to the request with a gift if it comes from a true, tried and tested friend. Personal loans, without good will on both parts quickly can be fraught with tension and reprocussions involving enormous stress.
There must be transparency and clarity about the conditions and acceptable terms and times to discuss the ongoing transaction. Any confusion and ambiguity about what is expected must be resolved.
Default on payments is what has given “personal loans” such a bad reputation.
Any agreement must be binding and the resources of the lender have nothing to do with loan and should not diminish the respect and gratitude of the borrower.
When a person makes a decision to ask for a loan, he has also made a commitment to return it on agreed “deadlines.” That should not present a dilemma when asking for help from a friend who is willing to provide it.
No borrower should expect to be cut “an unreasonable amount of slack” just because the lender shares a certain amount of the same D & A. What are the inherent problems with personal loans? And how can they be eliminated?
- Be prepared to justify the amount of money requested and beware of the seriousness of the subsequent financial obligation.
- Carefully and clearly calculate a time payment plan schedule that is feasible and realistic.
- Remember the lender wants the borrower to succeed and should be willing to accommodate him and maybe, if enough good will is put forth, even turn the unpaid balance into a gift.
- Keep the lender up to date and discuss the progress frequently and reassure him he is not taking a risk when dealing with you.
What makes a loan a good experience for both the lender and borrower:
- A personal loan can create a feasible opportunity and alternative to expensive banking fees, excessive interest and rigged policies.
- Friends are meant to help each other, but they are also meant to be responsible to each other.
- Lending money can change the dynamics of a relationship one way or another. Unfortunately it can put a frost on a relationship that may be difficult to thaw. Relationships can flounder on the rocks. The lender can feel “used” and rendered “ irrelevant.”
- No one should want money to dictate the terms of a relationship!
- Relationship should be more important than money, but how does one get an accurate assessment as to the quality of the relationship to begin with? How much evidence should be reviewed in the strength of the relationship before considering the loan to be a gift?
Things to avoid:
- Playing the role of a cop when there is delinquency in the payment plan
- Clamming up when the lines of communication need to remain open.
- Allowing the personal loan to dissolve a healthy relationship.
- Never bring up the “loan subject” at a family occasion.
- The barrower should avoid anything that will make him appear to be irresponsible or unconcerned about the “balance owed.”
- Both lender and borrower must agree to do every thing possible to reduce stress and avoid tension.
- Set aside certain times to discuss and deal with the progress of the loan.
- Clarify any necessary “boundaries” and conditions when the loan is being discussed and possibility being reconsidered.
- Agree to realistic regular payments which are far better and easier than large and often unmanageable balloon payments.
- Realize that financial problems can surface that may make a regular payment difficult or impossible. Let that be solved by providing an explanation and discussing a plan for“catching up.”
- The borrower should consider setting up a budget that is realistic and focus on the priorities listed in it.
- Realize that if the lender is not imposing interest on the money he loaned, then he, himself, is losing the interest he could have earned if he had not made the choice to enter into this loan. This consideration should prompt the borrower to make wiser decisions when it comes to “discretionary” spending and display an honest effort to meet the expectations expressed at the time the loan was requested.
- Both the lender and the borrower should do their very best to make the loan a good experience that can be approached with satisfaction as well as pride stemming from a healthy relationship of friendship.