During tough economic times, it’s not uncommon for family and friends in a pinch to ask for help, most often in the form of a loan. Is it ever wise to lend to those close to you? If so, how can you determine when it’s appropriate versus when it may lead to larger problems?
The baseline attitude for considering whether to lend anyone money should be one of caution. Why? Because Scripture always describes debt in a cautious manner. One example comes from Proverbs 22:26-27, where it says, “Do not be one of those who give their hand in pledge, those who become surety for debts; For if you are unable to pay, your bed will be taken from under you.” Add to that the issue of debt being between family or friends, and the risk of harm being done to the relationship is multiplied.
That doesn’t mean we shouldn’t provide a helping hand to those in need, especially those closest to us. The Gospel is clear on that point (Mt 25:35-40). Two questions worth considering before you step into such a situation are whether you are in a position to provide help and if it can be reasonably expected that the assistance you provide will actually help your family member or friend.
|Giving money instead of loaning it is often advisable. Shutterstock
This is where the issue of enabling comes in. I remember one couple stopping me at an event to ask for guidance about the help they were providing family members. They had the resources to help, so that wasn’t the issue. Their question had to do with whether the help they were providing was actually benefiting the recipients in the long term. Our goal should be to help those we love become the best person they can be. Sometimes that requires mercy. Sometimes that requires “tough love.” It is often difficult to know which is needed, so it is important to pray and seek counsel. If we error, we should error on the side of mercy. After all, our Lord did!
Once you decide to provide assistance, you’ll need to determine whether to do so with a loan or with a gift. Unless the circumstances make it clear that the funds will be used in a productive way (e.g., down payment on a house), and that the recipient reasonably expects to be in a position to repay the amount, it probably makes more sense to provide the help in the form of a gift. That will avoid creating ongoing tension that results from unpaid debts. Providing assistance through a gift also helps you be more realistic about how much you can actually afford to help.
Finally, if you decide to lend money rather than give it outright, you’ll need to determine whether to charge interest. Using the same parameters you did for making the loan in the first place should help you with the decision regarding interest. If the loan is for a productive purpose and it appears the recipient should be able to repay it (a business loan for example), charging interest is reasonable. If you conclude the recipient can’t afford to pay interest, that may also be an indication that they can’t afford to borrow the money either, and that any transaction should be in the form of a gift. God love you!
Phil Lenahan is the president of Veritas Financial Ministries (VeritasFinancialMinistries.com) and the author of “7 Steps to Becoming Financially Free” (OSV, $19.95). Submit questions for columns to firstname.lastname@example.org.