LENDING MONEY TO FRIENDS OR FAMILY? THINK ABOUT THESE THINGS BEFORE SAYING YES

When a close friend or relative asks for money, the decision rarely feels purely financial.

Perhaps they need help with a medical bill, a business is struggling or they are short of money for a house. If you have savings available, saying no can feel selfish.

But before transferring the money, work out what would happen if you never got it back.

That may sound pessimistic, but it is probably the most useful question you can ask. If losing Rs 20,000 would be annoying but manageable, that is very different from lending Rs 10 lakh that you were saving for retirement or your child's education.

Money earmarked for important goals should ideally stay there. The same applies to your emergency fund. If lending money leaves you without enough to handle your own unexpected expenses, you could end up borrowing yourself when something goes wrong.

It also helps to understand why the person needs the money.

A one-off emergency is different from someone who repeatedly runs short before the end of the month. If a friend already has several loans and is asking you for money to pay another EMI, another loan from you may simply postpone the problem.

Before lending a substantial amount, talk about repayment. How much can they realistically return each month? When will payments begin? Is there a date by which the entire amount should be repaid?

It can feel uncomfortable to discuss these things with someone close to you, but leaving everything vague can create a much more uncomfortable conversation later.

For a large amount, put the arrangement in writing. Record how much has been lent, when it was transferred and what has been agreed about repayment. Depending on the amount and circumstances, you may also want professional advice on how the loan should be documented and any tax implications.

Be particularly careful if someone asks you to become a guarantor instead of lending them money directly.

Signing a guarantee can feel easier because no money immediately leaves your bank account. But the financial risk is real.

If the borrower stops paying, the lender can ask you to honour the guarantee. Under Indian law, a guarantor's liability is generally co-extensive with that of the borrower unless the contract says otherwise. A lender can also proceed against the guarantor without first exhausting every recovery option against the borrower.

There can be an impact on your credit profile too. A loan you have guaranteed can appear on your credit report, and if the borrower defaults, your credit score can be affected.

So before guaranteeing someone's loan, ask yourself the same question you would ask before lending them the money: could I afford to repay this debt if they couldn't?

If the answer is no, signing the guarantee is a much bigger risk than it may appear.

There is also the effect money can have on relationships.

A repayment that is a few days late can become a source of resentment. You may see your friend taking a holiday or making an expensive purchase while they still owe you money. They may start avoiding you because they feel embarrassed about not paying.

Sometimes the safest approach is to give a smaller amount that you can afford not to get back, rather than lend a much larger amount that you desperately need repaid.

You can also help without handing over money. If someone is overwhelmed by debt, you could help them list their loans, speak to their lender or work out where their monthly budget is going.

Helping someone you care about is not a bad financial decision. Putting your own financial security at risk without thinking through the consequences can be.

Before lending money or signing a guarantee, decide how much you can genuinely afford to lose. If losing that money would derail your own plans, it is reasonable to say no.

2026-09-12T04:47:32Z