Is it a good idea to lend money to a friend or family member?

Everyone wants to support their family and friends, and lending them money to help can be tempting. It can also cause complications, not least of which is potentially irreparable damage to your relationship. That means you should not lend money without careful consideration.
Whether it is a good idea to lend money will depend on your personal circumstances, such as the nature of your relationship and your own financial situation. Ask yourself whether you can afford to lend the money, if the loan will go to a worthwhile cause, the likelihood of repayment, how you will manage if your own financial circumstances change, and how it may affect your tax status.

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Advantages and disadvantages

Many different types of loans are available. For some people, these are risky or inaccessible. Asking a friend or family member for help is easier. No credit checks, no high interest rates and increased flexibility if anything changes. It means predatory loan practices can be avoided.

The biggest risk is to your personal relationship. Arguments over the size of the loan or the repayment schedule could cause awkwardness and resentment. You may never see your loan repaid.

Importance of a formal loan agreement

One way to avoid arguments is to establish a formal agreement governing the terms of the loan, including a repayment schedule. It should be made in writing, like your repayment records. You can do this yourself, but a professional service such as can ensure agreements are legally watertight.

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There are many reasons to lend money to friends and family, but if you want to reduce potential issues, you need to take precautions. Most important is ensuring there is a written loan agreement so that everyone fully understands and has realistic expectations about the terms.