Lending Money to Friends and Family Could Have Negative Consequences

There is an old saying that you shouldn’t lend money to your friends and relatives, and a new study seems to bear that out.

It is fairly common to borrow money from or lend money to your loved ones or friends. According to a new study from LendingTree, 51% of the respondents said they had lent to friends or family members during the last five years, and 44% said they had borrowed from their loved ones in that timeframe.

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Despite the prevalence of these transactions, they do not always have positive outcomes. In fact, 24% of respondents said they regretted lending money to friends and family. More than one third of lenders have not been repaid in full, and 22% of borrowers said they have not repaid their loans.

Borrowers and lenders alike reported negative consequences from these loans, ranging from hurt feelings (14%) to decreased contact and resentment (10% each) to verbal altercations (8%); 4% of respondents said the loan caused irreparable damage to their relationship.

Nearly two thirds of borrowers said they felt guilty asking friends or family members for money. However, an equal number said they would not hesitate to ask for funds again in the future.

The most common reason for borrowing or lending money between loved ones was to cover rent or mortgage payments. Other reasons were automotive expensive, debt repayment, medical costs, and child-related expenses.

A good rule of thumb is to never lend out money you actually need to be repaid. This is when tensions flair, especially if the borrower is unable to repay the loan in full. As a borrower, consider alternative funding sources before potentially putting a strain on your relationship.