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.

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

Other Articles by Jonathan Dyer

Bilt Rewards Launches Travel Portal with Benefits for Cardholders

Last year, the startup Bilt made a splash when it announced a new service that would reward users for paying their rent. That premise was then expanded upon with the launch of the Bilt Mastercard, which is issued by Wells Fargo. Now, continuing to capitalize on both the hype of their product and the demand for travel, Bilt has debuted another new offering for customers. This week, Bilt Rewards announced...

Cash App Introduces Round-Up Investing Feature for Debit Card

Debit card customers looking to grow their investments gained a new, automated option today as Block Inc. (formerly Square Inc.) officially announced a new feature for its popular Cash App. Now, customers with the Cash App Cash Card can opt into Round Ups as a means of growing their investments. When this feature is toggled on, Cash App will round up debit card purchases to the nearest dollar and invest...

Marqeta Expands Credit Program with New APIs and More

A FinTech that specializes in creating credit card experiences is rolling out some new features. This week, Marqeta announced what it calls a "significant expansion" of its credit platform. This includes more than 40 new credit APIs that will further help clients craft and launch their own credit card products. Additionally, the company notes an updated intuitive dashboard. Using this platform, businesses can create unique card options that can not...