Should you give a friend a loan? Experts say lending to loved ones is risky

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Monday, April 11, 2022
Loaning money to friends and family a risky proposition, say experts
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Inflation is roaring, rents are up and times are tight. If a friend or family member hasn't asked for a loan, consider yourself lucky! We look at lending to loved ones.

SAN FRANCISCO (KGO) -- These are tough times. Inflation is raging, rents are skyrocketing and often pay is not keeping pace. So if you haven't been hit up for a loan by a friend or family member, consider yourself lucky.

Here is the big question: should you lend money to those you know? 7 On Your Side's Michael Finney asked on his Facebook page if anyone had lent money to friends or family. There was a big response, but few were willing to be interviewed publicly about their experiences.

"I was a little too generous with one particular friend, I was actually having second thoughts about appearing on camera for this," Elizabeth Evangelista told said to 7 On Your Side.

Evangelista says she helped a friend by lending him money. "He assured me that he would pay it back, but he never did, and each time I confronted him about it he would make up excuses or try to avoid the subject," she said.

That probably sounds familiar to you. A recent Bankrate.com study found 69% of us have lent money to friends or family, and it did not go well for almost half of them.

"Our research found 44% of people who did this got burned one way or another," Bankrate's Ted Rossman told 7 On Your Side. "Either they lost money, their credit score was damaged, or their relationship was damaged."

That happened to Madeleine Salada. She lent money to a friend.

"We have not been in contact for years," she told 7 On Your Side. "It took a long time to get the money back, and when I finally had the courage to approach him about it... He made it quite a bit more awkward by stating how the difficult financial position he was in at the time."

She finally got her money back, but it was in drips and drabs over time.

"I would say either don't do it, or if you do, treat it like a gift and don't overextend yourself," says Rossman.

The study also found 19% of those surveyed had actually lent the use of a credit card and 21% surveyed say they have co-signed a loan.

Lending a credit card is really taking a chance. Co-signing is incredibly risky since you are on the hook for all of the money borrowed as well as interest. Your credit score can also be destroyed if things go bad.

We will give the final word to Bankrate.com's Ted Rossman: "It is like the airlines say, you want to put your oxygen mask on before helping others. I think a lot of people risk their own finances, then the whole thing blows up. The relationship included."

Take a look at more stories and videos by Michael Finney and 7 On Your Side.

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