One 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.
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.
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?