When are Personal Loans a Bad Idea

Nothing can destroy family and friendship quicker than money. It is for this reason that I will never lend money to family or friends that I will expect to receive back. Of course, I learned this the hard way.

When my wife and I were first starting out I had a friend, who I’ll call Peter to protect his privacy, who had been kicked out of his house and was living with my mom’s good graces rent-free in her basement. Times were tough and Peter’s dad refused to help with any money for food or the increased utilities. With my mom’s finances strained, Peter began looking for another place to stay. He was a good kid after all, and hated seeing the strain that his presence was causing.

We were looking at small, one bedroom apartments when I asked my wife if we could consider a two bedroom unit instead. We could split the rent with Peter and it would help him in the awkward situation he was in, I reasoned, so she agreed. It didn’t take long for us to find a decent apartment and before we knew it the forms were signed and we were set to move in. It was then that Peter told us that he would be taking the next two weeks to spend time with his dad on a road trip through Canada. This meant that he wouldn’t be working and he expected to avoid paying his share of the first month’s rent.

After dumping our savings to cover the entire first month’s rent and the deposit, we stocked the cupboards and the refrigerator with food and set about filling the small apartment with cheap or free furniture from other tenants who were moving out of the units. Things were beginning to feel like home, though money was tight from paying the extra amount for an apartment that was a little out of our original budget.

When Peter returned from his vacation, he was in good spirits and went back to work with gusto. Soon after, though, his attitude changed. He started hanging out with people we’d never met before and then we’d come home to find some of those people hanging out around the place, eating up the food we’d purchased. Peter asked to borrow our car and brought it back with a broken transmission. With the food now gone and our transportation to work now broken, we were in quite a bind. To make matters worse, Peter violated the rule against pets and left us babysitting a small kitten that he had decided to bring home.

It was a few months before the dreadful day came. It was one of the worst experiences that my wife and I have ever faced, an eviction notice. For months we had tried to make ends meet, we had struggled and struggled but the house of cards had come crashing in around us. After giving up my steady job for temp work closer and easier to get to, I found myself working 12 hour shifts in manufacturing plants, dodging sewing needles in cramped conditions or burning my fingertips while producing products made from plastic molding; it wasn’t enough.

Eviction wasn’t the end, Peter had been 17 when he signed the rental agreement and both he and his dad asserted that he wasn’t responsible for any of the past due rent since he’d lied about his age. It didn’t matter to the collection company, they had three names, they could care less who paid it and the longer it went unpaid, the more they would be able to collect. In the end, Peter’s share fell on my wife and I to cover.

I only spoke to Peter once after that. He stopped by and apologized for what had happened, he also promised to make good on his commitments and agreed to pay us back. It was the last time I ever saw him.

I always liked Peter. He was a good kid with a big heart, but even the best of people make bad decisions from time to time. From that day forward I knew I could never again let anyone else jeopardize my ability to take care of my wife and our family. I vowed that I would never give out a personal loan or get into an obligation that I could not live without seeing paid back. Since then I have made a few personal loans that were conveniently forgotten by the people who had made so many promises to make good on the kind act, but in each situation I walked away knowing that I could live without ever seeing that money returned. It didn’t stop the pain that was caused when the loan was forgotten, but I was able to retain the friendships. When those same people asked for loans again, I always answered that I had no money to spare.

So, take this lesson from me, when it comes to personal loans: never extend yourself, never loan more than you are able, and when it comes to family and friends, never lend money if it will put you into a bind. Even with the strictest of repayment agreements, you will end up being the bad guy for enforcing it. Feelings will get hurt and relationships will be lost. If you can’t chalk it up to a loss and allow it to be swept under the rug, don’t loan it out.