6 reasons why you shouldn't lend money to friends or relatives

Did you know that more than half of people have lost friendships due to unrepaid debts?

You may think that helping a friend in a difficult situation is the right thing to do, but it can completely ruin your relationship. If you need more reasoning, here are six reasons why lending money to friends or family is a bad idea.

1.You are the last hope

Most likely, they are turning to you because they can’t get a loan from the bank. This means that traditional lenders consider them too risky to make a loan - and that's after taking into account all the possible interest benefits on the loan.

Most loans to friends and family have very low or no interest rates. So, when you lend money to a loved one, you're taking on a huge risk for a fraction of the reward that the bank would normally receive.

2.You'll probably never get your money back

Nearly three-quarters of people who borrow money from friends or family never repay the loan in full.

Instead of expecting the money to be paid back, you should think of the loan as a gift. You'll likely never see that money again, so only borrow what you're willing to part with forever.

3.You May Indulge Your Loved Ones

Most loans involve parents lending money to their adult children. Sometimes the reason for the loan is justified, such as a one-time emergency.

But often the reason is not so good, and parents are simply encouraging bad financial habits. If your children think that you will always help them out of any financial problem, they will have no incentive to develop good financial habits.

4. You yourself may need this money

Unforeseen situations and job losses happen. And when that happens, you'll need extra money to pay bills and stay afloat. If you have a very good cushion, you may not notice the loss of the money you borrowed.

But only a quarter of Americans have more than $10,000 in their savings account. So if you're like most people, you'll want to get your money back as soon as possible. Reducing or even eliminating your savings to help a friend could leave you in the same situation as them in the near future.

5.. Constant reminders of late payments will be awkward

Since most loans are never repaid, there will likely come a time when your friend or relative falls behind on payments. When this happens, you will have to remind them about the late payment. And this conversation will be incredibly awkward.

But that's not all. They will likely continue to delay payments. And you will have to remind them every time that they are late in payment.

6. This can ruin your relationship forever

After several late payments, you actually become a debt collector for your loved one. And this fact will affect your relationship.

You will be upset that they do not return your money, which shows that keeping promises is not a priority for them. And they will feel uncomfortable every time they see you because they know they owe you money. Family dinners and outings with friends will now be accompanied by many unpleasant emotions.

If you do decide to lend money to a friend or family member, do it right and put the agreement in writing. Otherwise, consider your money lost or given away.