Most financial writers will tell you to never ever ever under any circumstances loan money to your friends.
That seems a little harsh. I’ve loaned various amounts to various friends, and I’ve always been paid back. However, I make a point to never loan more than I can afford to gift.
Yesterday, there was a post on Apartment Therapy from a girl who bought all the furniture and other supplies for her apartment (including for her roommate’s room!) with the plan that the roomie would split it with her. It’s a year down the road, she’s moving out, and she hasn’t seen a penny of that money. Every single commenter basically said, “you were an idiot, you probably just have to eat this loss.”
And that is why you don’t loan money to friends you can’t afford to lose.
Sometimes it’s a small amount – you’re at a bar that only takes cash and your friend doesn’t have any, but you do. You can decide whether or not to pay for them. Maybe they’ll repay the $6 (if they’re a decent person, they will) and maybe they won’t. Only buy it for them if it’s a small enough amount that if you don’t get paid back, it won’t hurt the friendship.
With bigger things, try to have it written down. I recently booked a vacation with three friends – I made the reservation and they all paid me back. No problem. Still, before booking, I sent them all a link to the place we were staying and said, “It’ll be $72 each, total, sound good?” My friends are all respectful people who wouldn’t try to take advantage of me and avoid paying me back, but it’s still helpful to have a record of how much something is and that they agreed to pay it.
More importantly, if things fell through and one of those girls had backed out and not paid me back for her portion, and the other two weren’t able to split it up with me, and we couldn’t cancel and get a refund … $72 wouldn’t kill me. It’s enough money that I’m not wandering around handing my friends $72, but it’s not the difference between making my rent or not. Not getting paid back would be a pretty big damper on our friendship, but it wouldn’t ruin my life.
Do you loan money to your friends? Have you learned the hard way not to?