Loaning to Family and Friends
It’s not uncommon to be approached by a friend or family member in need of a loan to help them through a rough time. This can be a tough scenario to navigate because we want to help them out, but we also realize that relationships can be affected when we loan money to someone we know. Scripture illustrates the relationship issues between the borrower and the lender in Proverbs 22:7 – “The rich rule over the poor, and the borrower is servant to the lender.” Let’s look at how we can help out those close to us and also work to preserve that relationship.
The following recording is from “Mornings with Kelli and Steve” on Moody Radio Indiana (97.9 FM). For more information on Moody Radio, go to moodyradio.org/indiana.
Q: With debt being such an easy thing to acquire, what kind of situations would prompt us to loan money to others?
For today’s discussion, we’re going to skip over the possibilities where we are approached to loan money as an investment or business opportunity. In those situations, our motive is not so much to help others, but to profit from an investment. Scripture mentions this possibility, but doesn’t spend much time on it.
The loan scenario that the Bible addresses more frequently relates to helping out the poor and needy by means of making loans to them. These are the individuals that are in a financial struggle where a typical lender isn’t willing to give them a loan. In desperation, that person may start to seek the funds they need wherever they can and that often leads them to friends and family. Since we’re trying to provide help to the individual in need, this type of loan is very different from the investment version because we shouldn’t be doing it with a profit motive.
Exodus 22:25 – “If you lend money to one of my people among you who is needy, do not treat it like a business deal; charge no interest.”
Q: We often think of loans as being a burden on a person, so how are we to lend to the poor in a way that is actually helpful?
Scripture refers to this type of loan as being an act of generosity.
Psalm 112:5 – “It is well with the man who deals generously and lends; who conducts his affairs with justice.”
We see two key principles for lending to the poor in scripture:
- Don’t charge your brothers or sisters in Christ interest when they’re in need of a loan.
- Don’t lend with the expectation of getting the money back. In fact in Luke 6:35, Jesus even says “love your enemies, do good to them, and lend to them without expecting to get anything back”.
These two principles instruct the mindset of the lender to one of generosity, but also serves to protect the relationship between the borrower and the lender. When we no longer expect to get the money back, it takes the stress off the situation.
In a typical loan, the borrower is in the servant role and subject to the demands of the lender. However, when we are the lender, we can control the burden placed on the borrower and by doing it with an attitude of generosity and care, we are able to lessen the burden and protect the relationship.
Q: If our primary concern is to protect the relationship, shouldn’t we just give the money as a gift instead of as a loan?
The people we can help financially is a spectrum. On the one end, we have the person that’s not in a hardship situation and has good income to be able to pay you back. On the other end, we have the person that has no ability to repay a loan.
For example, the person with sufficient income may be in a situation with high interest credit card debt they’ve been battling for a while. If the spending problems have been fixed, you may offer them a loan at a much lower interest rate, helping them to get out of debt much quicker. You don’t really have a profit motive, but you’re being compensated as the lender while still helping someone that wasn’t in a hardship situation.
Q: What about the person that’s in a financial struggle. How can we help that person out?
The method we use may depend on the degree of difficulty the person is in. You could have a person that would be well served with a no interest loan that gives them access to the cash they need. By structuring it as a loan, we may preserve their dignity since it allows for them to pay you back rather than take a handout.
Then there is the hardship scenario where someone is in a serious financial struggle. It could be the result of a job loss, health problems, etc. and they don’t even have the hope of repaying a loan. For that situation, we probably need to give them an outright gift if we’re able to keep from adding another burden on them.
This sliding scale can also change along the way. Anytime we make the loan, we need to be prepared to not get it back so we don’t find ourselves in a financial bind where we’re tempted to pressure the borrower to pay us back. Relationships are always more important than money.
Brad Graber, CFP® has been working with clients on personal financial planning and investment issues since 1996. He invests his time mentoring and educating individuals on ways to be better stewards of the resources God has entrusted to them.