Is it ever wise to lend money to a friend?
FRIENDSHIP WEEK: Shakespeare wrote ‘neither a borrower nor a lender be’, but was he being a bit dogmatic?
‘Neither a borrower nor a lender be” is one of many Shakespearean quotes that have long since become cliches. But do you know which of the great playwright’s characters said it? And what came next?
Of course you do – well-read, cultured soul that you are – but on the off-chance you do not, the quote in full reads: “Neither a borrower nor a lender be, For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.”
The lines appear in Hamlet and were uttered by Polonius, who was sending his son Laertes off to Paris to be schooled in the fine art of being a gentleman.
The quote has lived as a piece of wisdom for more than 400 years because, in just 22 words, it conveys multiple, enduring truths.
First off, the quote alerts us to the likelihood of resentment developing if personal debt and personal relationships are allowed to intermingle. Then it tells us how resentment will be magnified if a debt is not repaid in timely fashion. And if that happens, lenders lose both money and mates.
Shakespeare also makes it clear that even if “friend loans” are repaid, the notion is to be frowned upon, because borrowing or lending within your circle of friends makes you less thrifty and less equipped to manage your household budget.
So lending to friends is a big no, right? We would not like to be as dogmatic as Shakespeare and, although there are certainly cons when it comes to lending to or borrowing from your buddies, there are (a small number of) pros too.
CON If you are coming to the aid of a friend in financial distress – either severe or mild – you are unlikely to ask them to sign a six-page loan agreement with very, very small print before you hand over the cash.
But, although the absence of paperwork is understandable, it does mean there is no agreed repayment structure, and that creates ambiguity, which inevitably takes you down the road to resentment.
PRO Unless you are Monty Burns of The Simpsons, you will most likely not charge interest on loans to friends. This is a good thing. No one wants to be Monty Burns, and the fact that a friend needs to borrow money should be enough to tell you they are not flush and so are hardly equipped to pay bank interest rates, which typically run to between 10 and 20 per cent.
The informal nature of a friend loan saves borrowers about €150 on each €1,000 borrowed, and such savings are not to be sniffed at.
CON If you have ever missed a repayment on a bank loan or a credit-card debt, you will be well aware that professional lenders are not shy about looking for their cash back. When it comes to sending snotty letters or making angry calls looking for payments, these institutions are rarely found wanting. Friends don’t behave like this, so conversations that start “Hello, is that Mr Pricewatch? Can you tell me your mother’s maiden name” are pretty rare. But a friend’s reluctance to make a song and dance about a loan means repayments get put on the long finger, while less-deserving creditors such as credit-card companies get seen to first.
PRO If you lend money to a friend, you can feel better about yourself. You have done a good thing and helped a friend in need. They, in turn, can feel better about you. You have shown yourself to be a person who is willing to give them a dig-out when they most need it. You are someone they can rely on.
CON If you lend a friend money, you might have to have The Conversation. Is there be anything more cringe-inducing than having to ask someone you know and like for money back? It is incredibly awkward for both parties, not least because it is almost impossible to get the timing right. You might ask at exactly the moment the borrower has been on the receiving end of a windfall. But there is also a chance that you will ask when they are still in a bad way. Either way, it doesn’t work. If you happen to ask when they have the money, and they give it to you, you will wonder why you had to ask. And if you ask when they are skint, you will feel bad and they will think you are the spawn of Satan.
PRO One of the best things about the borrowing and lending business between friends is the speed at which the transaction takes place. A person with money can help a person without money in the time it takes to walk to an ATM. When borrowing money from a bank, the process can seem endless, not least because you might have to grovel to some jobsworth in a cheap suit.
CON Borrowing from a friend can radically alter a relationship, and thoughts of the outstanding loan – especially when those thoughts are unspoken – can quickly grow out of proportion to the actual loan.
CON No one wants to be taken for a mug. If you lend someone money once, you might reveal yourself to be a soft touch and quickly become the financier of first resort among your circle of friends. This is something that gets very old very quickly.
CON Lending someone money ultimately costs you money. Granted we are living in an era of historically low interest rates, but the principle still holds good. If I lend you €1,000 for a year, I am losing out on the interest I might have got by having it on deposit in a bank.
CON Right now I have loads of money, so I lend some to you. But then I fall on hard times. I have no money but neither do you, which makes me more skint than I need to be and a lot more resentful.
TO LEND OR NOT TO LEND? TWITTER ADVICE
Last week we asked Twitter users whether lending to friends was wise.
My grandfather said never a borrower nor lender be – now I have a 1,000-year mortgage – how right he was! Berni Donovan
I was always told to only lend money you don’t expect to get back. If you do? Bonus. If you don’t, you don’t feel hard-done-by. Nicola Brady
Without a legal agreement, be prepared to never see it again. Paul O’Brien
No. And family a double no. Anthony O’Connell
Depends on who they are, how much, and whether or not you will need it back. Hazel Larkin
As long as you don’t want them as friends any more it’s fine. Cian McGar
If it’s the kind of friend you don’t mind not seeing for a while, fire ahead. It buys you some space. Peter Kavanagh
Depends on who it is. Sue Kirk