Personal Finance News

Survey Highlights Why Lending Money to Friends is Ill-Advised

At this point, we all know that lending money to friends or family is likely not a good idea. Nevertheless it’s human nature to want to help out when loved ones ask for assistance. Unfortunately, as a new survey by Bankrate reinforces, financial favors between loved ones can often come with negative consequences.

In a survey of 2,490 adults, 60% reported lending cash to a friend or family member with the expectation of being paid back. Of those, 46% said the transaction led to negative consequences. Moreover 37% said they ended up losing money while one-fifth of those lenders said their relationships with the borrowers were tarnished as a result of the debt.

Beyond lending cash, Bankrate also inquired about individuals who had lent their credit cards to a loved one and/or agreed to co-sign for a financial product. While only 17% of those surveyed said they had loaned credit cards to friends or family, 21% of those reported losing money by doing so and 16% said their decision did harm to their relationship. Additionally 12% noted that their credit scores were damaged as a result. Elsewhere one in five respondents said they had previously co-signed a loan, rental, lease, etc. for someone else. Similar to previous outcomes, 18% said they lost money by doing this, 21% reported harm to their relationship, and 20% saw negative impacts to their credit score.

Offering their two cents on the survey’s findings, Bankrate analyst Ted Rossman said, “I’d avoid lending cash and credit cards and co-signing. All too often, these situations end poorly.” Instead Rossman suggested that loved ones look for other ways they can assist, such as helping with research into loan products and other options. However, for those who do elect to loan regardless, he notes, “If you really want to do it, only offer as much assistance as you can afford to lose. In your mind, assume it’s a gift and that you won’t get paid back. Let that sink in ahead of time so that a negative experience doesn’t harm your relationship along with your account balance.”

As difficult as it can be to say “no” to friends and family when they need financial assistance, Bankrate’s findings once again show that it’s often the best option. This is especially true when it comes to loaning credit cards or co-signing, as these activities can also harm your credit score in addition to losing money. Therefore it’s always worth a second thought before putting your finances and friendships in jeopardy.