When Lending Turns Sour: Lessons To Learn From Loaning Money to Friends And Family

It starts with a simple gesture and good intentions. A family member in need (both distant and far), a friend down on their luck, a colleague facing temporary financial strain, etc. Lending money to those close often seems like the right thing to do, after all, it’s a way to be there for someone when they need it most. But what to do when the repayment stalls, or worse never happens as excuses multiply, or the relationship sours. What began as an act of kindness on your part can turn into a long-term ordeal of bitterness and regret.

Finance expert Larrisa Fernand’s recent post on the social media platform X (formerly Twitter), created a thread of many people sharing the pitfalls of liaoning money to friends and family, opening up a flood of stories and experience-based tips. Anecdotes of broken trust, vanished friendships, and unreturned funds poured in, each offering a cautionary tale. From six-figure loans to small amounts, the sentiment was alike: lending money to a loved one can turn into a risky affair.

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But how should you navigate the delicate train of lending money to friends and family? Before we delve into this let’s take a look at how lending turned sour for a few people and what they learned from their experiences.

Tales Of Broken Trust And Strained Relationships

One user on platform X shared a jaw-dropping experience: “Loaned my cousin Rs 75 Lakh. Now he asks me why I want it back because I am already a crorepati, and 75L is ‘chicken feed’ for me. The audacity!” This story reflects a recurring theme among lenders, borrowers who do not even acknowledge the significance of the sum, or worse, assume it should be a gift due to the lender’s perceived wealth.

It highlights a fundamental issue: different perceptions of money and entitlement. Another user shared a more distressing ordeal. “I loaned Rs 80,000 to a close friend to help clear his gambling debt. He enrolled in therapy and wanted a fresh start. But he never returned the money. Eventually, he even blocked me on all platforms and cut off contact.” Such an incident can shake up anybody’s trust for any next situation of helping out a friend in need.

The emotional toll of such situations is often deeper than the strain of financial loss, leaving lenders questioning their judgment.

Red Flags To Watch Out For Before You Lend

Though you may not notice at first, some people leave tell-tale signs of financial red flags many times. It could be a friend of yours who never initiates or refuses to pay when in groups of dual. Or someone who is violent, more often than not, for matters related to money or otherwise.

Some other stories revealed how lending could even become dangerous. A user recounted a story of a friend who, after borrowing money began to make threats when repayment was requested. “He said he would beat me up using goons if I asked for the money again. Eventually, he paid up due to peer pressure, but I cut ties with him after that. Since then, I don't loan money to friends.” The fear, anxiety, and tension these situations create can turn even a simple loan into a matter of personal safety.

Says Certified Financial Planner Lt. Col. Rochak Bakshi (Retd.), Founder & CEO, True North Financial Services, “red flags one should watch out for include a history of financial irresponsibility, recurring requests for loans, mounting debt, a lack of clear communication about why the money is needed, and uncertainty regarding the repayment plan. Additionally, if you have concerns about the person's ability to repay, that should also be a major warning sign”.

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For some, the damage was not as overtly dramatic but lingered for a long time nonetheless. As a user recalls, “A friend of mine took Rs 2,000 from me when needed it in an emergency. It took two years to get it back, and only after he acted like he had forgotten all about it.”

Another X user, Anil Sharma shares, “I too have a story involving smaller amounts. This friend took the money twice from me. First in college days and then once we started earning. Long time so the cost (even memory of it) is amortized. The guy is no longer in touch now. Long story short, I figured out that someone who doesn't say NO stands to lose money as well as friendship. Best to lose none and better to lose just one.”

Is there a healthy way of saying No? Says Bakshi, “These kinds of conversations could stir up a lot of anxiety, stress, and emotions for both parties but in some situations, it is better to say “NO” than to ruin your relationship.”

‘You could be open and frank about your reasons and hesitations regarding lending money, whether it is financial limitations or personal boundaries. You could also express your support for this individual through non-monetary ways,” he adds. Setting boundaries clearly when it comes to your financial well-being and relationships is very important and often overlooked.

Too many Indian families would have a similar story to tell and many takeaways to keep from them. While some would expect to get repayment for the loaned amount at least some time in life, many would think the thought outrageous based on emotions of lending out of goodwill to their blood relatives or simply putting it as a cultural thing.

As another user says, “Loaned many times. Most came back. Big ticket loans are still not back, though each person is trying to survive, and sometimes I feel as if God sent me to help them as they were truly crushed by circumstances. My fight is with God to give me 20X of whatever I lose like this.”

Are written agreements or contracts advisable even with close acquaintances?

Money is a tricky subject, especially when it involves friends and family. Says Bakshi, “If there is a substantial amount of money involved you should definitely put things into writing as agreements or contracts since these contracts will safeguard both the parties if things go south and will protect the interests and money of both. “

To establish clear repayment expectations without damaging the relationship, lenders must ensure clear and open communication with their friends or family members to protect the relationship throughout the process. “Frame the conversation around the importance of trust and mutual respect, rather than focusing solely on the financial aspect,” Bakshi states.

Why Lending Turns Sours: Lessons To Learn From Real Experiences

The many stories shared on Larrisa’s post underscore a few key reasons why loaning turns into a sad affair for many people, often resulting in regret. However, they also give memorable lessons to remember:

1. Misaligned Expectations: As a user rightly pointed out, “Loan only that much you can afford to lose. Never let people know how much you are worth; otherwise, emotional blackmail for bailouts follows.” The idea that wealthier friends or family members should provide assistance is common, but such an assumption is wrong and can strain relationships when borrowers fail to recognise that a loan, no matter the lender’s means, still carries an obligation to repay.

2. Emotional Blindspots: Lending money is not a business transaction when emotions come into the picture. Therefore it’s easy to misjudge a person's intentions or their ability to repay, as one user learned that their friend took a holiday to Vietnam rather than settling a debt. “I helped a friend with Rs 1.5 Lakh for his child’s school fees. Post Covid, he opened two new restaurant outlets but never returned my money. Now I am blocked for asking once.”

3. Unspoken Terms And Assumptions: If you are lending money to a friend or some family member the conversation is often not formal at all but deviates from any practical discussion before the money is given. As a user shared, “There is no shame in asking what the money is for. I have loaned and refused depending on the merit.”

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“Consider putting the repayment terms in writing to avoid potential disagreements or disputes later. It's also essential to agree on a repayment timeline and schedule regular check-ins to prevent frustration and misunderstandings in the future,” Bakshi advises.

X user, Puneet Tanwar says:

- Avoid loaning money in the first place

- Never lend a large amount

- If you are okay to lend, check with mutual acquaintances first. People who ask for loans often have a history of seeking loans. And ‘NEVER’ lend to habitual loan seekers.

Another X user, Umaiz Shaikh, says that he lends money to two kinds of people:

1. Those I'm confident about that they'll return without me asking

2. Those I'm fine with if they don't return (to keep the relations)

These few key takeaways from two users, scarred by lending money to dear ones, are perhaps a summary of what you should consider before lending to your friends and family. As Bakshi puts it, “If you don’t feel the urgency of lending the money and are not fully convinced, It is better to avoid lending as there is a high chance that you will lose both the money and relationship.”