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How to Refuse Lending Money to Family & Friends

By Casey Slide

man asking for moneyOne of the most awkward things I have ever had to do was to ask a relative for money. I was about to graduate college, broke but debt free, and I desperately needed a car. So I asked a relative to give me a loan.

Yes, it was awkward, and to my surprise, she refused. While I know it was awkward for her too, she refused the loan in a way that made me feel like it was nothing personal. She knew why you should never lend money to friends or family. Instead of simply rejecting my request and leaving me to find an alternative solution on my own, she helped me find a way to afford a car.

Are you in a position where you need to refuse a loan from a friend or a relative? Here are several tips on how to refuse gently, while still helping your friend or family member.

How to Refuse a Loan Request from Friends or Family

1. Don’t Feel Pressured
Many people agree to these type of loan requests because they don’t feel that they can say no. You may feel like you’ve been backed into a corner with no way out, if your friend or relative is pushing you to make a quick decision. You don’t have to say yes, so don’t let the pressure get to you. Making the decision to refuse to lend money to friends or family before this becomes an issue will help alleviate the pressure.

2. Respond to the Request within 24 Hours
If absolutely necessary, tell your friend or relative that you need more time to think things through and that you’ll give him your final answer in 24 hours. This can make the decision easier, because you will have time to reassure yourself that you are doing the right thing. The extra day will give you time to gain the confidence that you need to form an articulate response. In deference to your loved one’s problem, and to ensure that you don’t build any false hopes, try to respond right away, if at all possible.

3. Be Firm and Concise
When you speak to your friend or relative, firmly explain that you’re not able to provide him with a loan. For example, “I’d love to help, but I’m just not in a position to lend you the money right now.” This is short and to the point and does not give your friend or relative much room for argument. If your friend or relative has your best interests at heart, this should be the end of the discussion.

4. Don’t Make Promises You Can’t Keep
Once you’ve decided that you won’t lend money to friends or family, don’t beat around the bush. Make it clear that you won’t be able to lend any money; don’t try to let them off gently by stating that you may be able to give them money next year or at some point in the future. If you hint that a loan might be possible “someday,” you’re really just setting up that person to repeat the same awkward conversation with you in the future.

5. Don’t Make Exceptions
If you really and truly don’t want to loan money to friends and family, you can’t make any exceptions. Loaning money to one relative, but refusing to loan money to another relative, could cause potential conflict within the family. Stand firm and don’t back down from the decision not to lend money to friends or family, even just this “one” time.

Things are a bit trickier if your friend or relative knows that you do have extra money to spare. In this scenario, you could say that while you have the money right now, you may need the money in the not-too-distant future. Stress that this money is your emergency fund to protect you against unexpected expenses. If you’re worried about looking selfish, you can also explain that you don’t want this loan to make your friend or relative feel guilty if they can’t pay back the loan.

asking hands money

Alternatives to Loaning Money

Once you’ve established that you can’t provide the loan, don’t just leave your friend or relative in a hopeless situation. Instead, open his eyes to some other alternatives:

1. Help Review Their Finances
To help soften the blow, offer to help your friend or relative take a look at his finances. This way, it’s clear that you want to help. There may be a way for your friend or relative to avoid getting a loan. Calculate income and expenses, and see what can be cut from the budget. Determine if a more manageable repayment plan is an option for current debts due. Also, suggest making a budget to help keep friends and family members within their means, so that they won’t need to borrow money in the first place.

2. Suggest Alternative Ways to Earn Income
Perhaps your friend or family member needs to make more money to pay for unexpected expenses. If that’s the case, suggest alternative ways to earn extra income by coming up with some side business ideas. If someone is artsy, recommend that she sell crafts or jewelry on Etsy. Or recommend fun or unusual part-time jobs, such as a casino dealer or caterer.

3. Suggest Selling Personal Items
Selling some personal items to get extra cash is another way to earn income. When you refuse the loan, offer to help your friend or relative go through their old things and have a garage sale. If you are computer savvy, perhaps you could help your friend or relative sell items on eBay as well.

4. Suggest Alternative Loans
Don’t suggest to someone an alternative loan unless there is no other way to sort out the debt. If this seems to be the only option, there are some great peer-to-peer lending companies online, such as Prosper and Lending Club. Depending on your friend or relative’s credit history, it’s possible to obtain an unsecured loan for a good interest rate from one of these websites. The guidelines they use are much less stringent than a local bank’s guidelines.

5. Give a Gift
Does your friend or relative have a birthday approaching? Consider giving a cash gift this year. The gift will be appreciated, and you might feel a little better about refusing the loan.

6. Co-sign for a Loan
If you feel like your friend or family member represents a good risk, consider co-signing a loan. By doing so, you make the agreement between the two parties much more legitimate, and they have a real incentive to pay back the loan. Keep in mind though, as the co-signor, you will be responsible if the other person cannot meet the loan obligations. Thus, only consider this option if you feel confident that the other person will be able to pay back the loan.

Don’t Feel Guilty

You’ll probably feel guilty about not lending money to a friend or relative, but you need to get past this feeling to successfully reject the loan request. It’s not your fault that your friend or relative is in a financial mess, and there’s no law that says you must give up your hard-earned cash to help someone else.

If you can’t afford to help or don’t want to help, you shouldn’t feel guilty. Once you have provided valid reasons for refusing to lend money to someone, it’s up to your friend or relative to accept this and move on.

Final Word

There’s no reason why refusing to loan money to someone you care about has to get in the way of your relationship. If you’re upfront and honest about why you can’t loan friends and relatives money, and if you offer to help them find alternative ways to eliminate their debt, the relationships should still remain intact.

Have you ever refused to loan money to friends or relatives? What was the experience like and what did you take away from it?

(photo credit: Shutterstock)

Casey Slide
Casey Slide lives with her husband and baby in Atlanta, GA. She graduated from the University of Florida in 2005 with a bachelor’s degree in Industrial Engineering and worked for a prominent hospital in Atlanta. With the birth of Casey’s son in February 2010, she decided to become a stay-at-home mom. Casey’s interests include reading, running, living green, and saving money.

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  • Skirnir Hamilton

    This is a really hard thing to do. My husband and I have the policy of making no loans to family or friends, but it is hard to explain it to my dad and my mom as they are divorced for many years and neither make well. My dad spends money like it grows on a tree and has always had money given to him by his mom until she passed away and never really learned anything about money. I do feel bad not helping him, but how can I give him money when I know it won’t do any good, until he gets his spending under control? My mom, on the other hand, spends better, but has a limited income as her husband, my stepfather, is retired and not doing as well physically as he used to. But they never saved any for this contingency over the years. It still doesn’t seem like I should swoop in and help them, and how could I help them and not help my dad? So I just say I have a policy of no loans. I try to help by giving a gift card they can use or a check for Christmas and birthdays, but that is about it.

  • http://pulse.yahoo.com/_FVIKWKXA2XO6YECZKBMZLURLXY Martin

    Don’t feel guilty about not lending money to either family or friends if those people cannot manage money. I learned that lesson a long time ago when I was a kid. Just about every person that bugs you for money is like that. They tend to have no moral compass and appear to never feel bad about not paying your back. I remember what my mother told me after I complained how I was never being paid back. She said to ‘cry poverty’ the next time it happens. Since an early age and continuing today, if I am ever asked for a loan, I simply say ‘I don’t have any money to loan you’. It does not bother me that they believe I have the money anyway. I know a family member who never managed money and totally was dependent on her father to rescue her anytime she needed money. The father spoiled her. She never paid back anything. After her Dad died, for the first time in her life, she started managing money. Why I am mentioning this is an example that people who bug others for money can learn money management skills if they have to and stop bugging other people for loans that will not be paid back.

  • http://beyonddave.com Cassie

    Making the decision BEFORE you are asked makes this much easier. Our family has a rule –we don’t loan money. We value our relationships and loaning money puts those relationships at risk. We may give money to friends or family as we can afford but we don’t loan.
    I loved your alternatives to loaning right up until number 6. People only need a co-signer because there is a good chance they will not repay. If you co-sign you are risking your money and the relationship.

  • Pingback: MoneyCrashers: 10 Reasons to Never Lend Money to Friends and Family « Beyond Black & White()

  • Kaydiane57

    I have made a loan to long time friend of 36 years, but not without an” I owe you” statement, signed by the person requesting the loan. She was really suprised that I would even suggest such a thing until I explained: What I said was, If she dies, I would have no recourse retreving my money from her family as I would have no proof of the loan. That was the end of story. I gave the loan & was paid back at the time stated in the” I owe you!”
    I felt uncomfortable at first, But got over it, I work hard for my money!!!!

  • sam

    I never ask to borrow money unless basic survival is at risk. I expect the same from others.

    When you ask to borrow money from family / friends … what they are asking is that you put THEIR interest ABOVE YOUR OWN.

    Unless their situation is dire, such as basic survival … you can be certain THEY would not do the same for you. WHY? Because they have some belief that their concerns are more important than yours.

  • Darcy

    I always am on paycheck to paycheck with a full time job and debt management. I was always willing to lend a friend some money frequently however I knew a friend with a teen has no job. A friend always tries to find a job but hard to find one. A friend has a SSI. Regrettably, I told her not to pay back when every time problems comes up unexpectedly. So many years, she came to me for lending and I did. This time I told her I am not able not to lend this time. She thinks I lie about having extra money to lend because of biweekly paycheck. She refuse to accept No from me that there is no more lending. I have to get my money problem together first before I think about lending. she keeps calling about money but I am so tired of saying no or not to answer her phone. Point is that you do not lend friends whose have no jobs. she would point out money is for her kid and it did usually for her kid. But I couldn’t do it longer. I have no problem to lose a friend who still refuse to accept No lending.

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