Loans & Lost Friendships: Should You Ever Lend Money To Friends?

Ask Google if you should lend your friend money and the consensus among finance writers and internet know-it-alls is an emphatic no: it’s awkward, you probably won’t get it back and it’s not worth destroying a friendship. But the basis of friendship is mutual support — and sometimes this requires a financial bailout. Given that money woes are a defining trait of our generation, lending each other cash has become a linchpin of modern friendship. That said, you have to take special care to ensure it doesn’t drive a wedge between you.

Grace*, a 23-year-old allied health assistant, shares the story of how her generosity resulted in her being left $1,800 out of pocket. 

“I lived with some uni friends a while back and when I moved out, they stayed on together," she says. "They somehow convinced me to pay an extra month's rent while they were looking for someone and said they’d pay my bond back when they left as it was ‘too complicated to sort out’. I kind of took it on good faith that I could trust them. But when they did eventually move out I had to spend about nine months chasing them for $1,800. It was awful.”

Sadly, the situation meant that the relationship was strained to the point of no return. Grace ended up losing her uni housemate friends, a bond that can often remain for life. 

“If they’d respected my time and given me a date to expect the money, I would maybe still be friends with them. After a couple of excuses, I began to feel that they wouldn't give me the money back unless I pestered them,” Grace shares.

We’ve heard what happens when loaning friends money turns sour, but is there a way to do it right? If you're considering lending a friend some cash, there are a few things to consider. Firstly, work out if you can afford the amount: is it $50 or thousands? Lynn James, a personal finance expert and the founder of Mrs Mummypenny asks, "Is it spare money you have hanging around in cash or an easy access savings account? And is it money that you’re definitely not going to need in the foreseeable future?"

Next, consider the friend in question (be honest with yourself here). Do you 100% trust that your friend will pay you back? Not having clear guidelines (such as when to expect your money back, or what the money is for in the first place), can result in strained friendships. 

Financial therapist and host of the Financial Therapy podcast Jane Monica-Jones recommends asking yourself a few questions before handing the cash over. “If you're going to lend that money, are you going to give it unconditionally? Are they allowed to do what they want with it? And if you're not happy with that, then… don't lend the money,” she says.

Finally, ask what your friend what they need the money for. Are they dealing with debt problems, emotional spending or a shopping addiction? And do they have any family that could help out before you step in? If your friend is struggling with an emergency like needing rent money, a cash flow crisis or a broken car, then fair enough. But if they just want a cute new dress? Probably not. Consider all the factors before putting your hand in your pocket.

According to Monica-Jones, the reason you can feel hurt by a friend not paying you back or nervous about potentially parting with your hard-earned cash isn’t that you’re a selfish friend, but because under a capitalist system, money equates to survival. 

“Money is about issues of survival and thriving," says Monica-Jones. "So we ask ourselves, ‘If I lend you that money, am I going to survive myself? If I'm going to take that setback and if I don't get that money back, am I going to survive? Is the friendship going to survive? We’re really talking about resiliency.”

This perceived threat to our security and survival, e.g. lending a friend $20 when you’re down to your last $100 for the week, can cause a whole range of emotions including stress, guilt, and panic. 

“The money situation made the friendship a lot more tense,” says Grace. “Each time we'd catch up for coffee and I'd hear about the things that they'd bought such as expensive lingerie, I'd wonder why they couldn't pay the money back.” 

To avoid any tricky situations that can result in the breakdown of the friendship, Monica-Jones recommends creating guidelines and an agreement before you lend your friend money, particularly if it’s a large amount. 

“You should work out some sort of repair and resolution strategy before going into the agreement," she says. This includes any payment plans, when the lender should be expecting the money back and how long the process should take. 

When someone you care about is struggling financially, you want to do what you can to help them. But when the person is seemingly well off but still doesn’t pay their share or give you your loaned money back, the friendship can quickly become a source of tension.

25-year old marketing manager Samantha* felt this when a friend wouldn’t pay her back after dinner or drinks. 

“It would be a conversation beforehand of ‘Yep I'll send you some money’, which then resulted in me having to chase them on numerous occasions," she shares. "It got to the point where I'd follow up, they would tell me they'd do it right then and there, and then not. It was also frustrating since they're in a very different pay bracket to me (much, much higher), and it felt like super entitled behaviour.”

Stories like these are a good reminder for the person on the other end, too. Are you taking your friend’s generosity for granted? While your pal shouting you dinner or a drink every now and then can be a nice gesture, making sure you do the same for them or offering to pay them back can help save your relationship. Budgeting apps can be an easy way to see where your money is going and remind you whether you grabbed the cheque at dinner.

According to Monica-Jones, setting boundaries (financial or otherwise) is like “building a muscle”. 

“It takes practice and sometimes having our boundaries pushed actually works that ‘muscle’.” She also notes that people tend not to have boundaries in interpersonal relationships when they're afraid of not being liked. “But actually,” she says, “If we put up a boundary, we like ourselves more.” 

Both Grace and Samantha tell Refinery29 Australia that since their unfortunate experiences, they’ve built better boundaries and have become more careful with lending money to friends. 

“I made it pretty clear [to my friend] that I was frustrated by their behaviour, and was firm whenever it came to paying for things that I'd need their money first,” says Samantha. 

“I also stopped offering to pay, or saying no when they asked to do rounds as I wasn't convinced that I'd ever see the money. They've started being a bit more conscious of it, but I still tread carefully.”

*Names have been changed.