Dave Ramsey Says This Money Move ‘Will Mess Up Relationships’ With Friends and Family

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It could strain and even destroy the relationship. 

There’s a good chance that at some point in life, a friend or family member will ask you for a loan. Maybe they’re short on cash while waiting for their next paycheck, or they need some help to cover a big expense. If you’re doing well financially, you might consider loaning them the money.

Financial advisor Dave Ramsey would definitely advise you not to do it. He recently shared advice on this subject, saying, “It’s fine to give money to friends and family in need if you have it, but loaning them money will mess up relationships.” He makes a great point here, and before you give anyone a loan, you should know how this can backfire.

A not-so-simple favor

When someone you care about asks you for money, it’s natural to want to say yes. You might feel pressured, or you might just feel like it’s the right thing to do. And it probably doesn’t seem like a big deal, either. You give them a loan, they pay it back, and that’s that.

Not exactly. That’s the best-case scenario. And while it could certainly turn out that way, it could also go south.

What often ends up happening is the borrower doesn’t pay you back when they said they would. They may ask you for a little more time. Or, they might just not pay you and not bring up the loan at all, putting you in the awkward position of saying “Hey, remember that money you were supposed to pay me back last Saturday?”

Therein lies the problem with loans between friends and family. It’s not like a loan from the bank, where the borrower gets charged interest, plus a late fee every time they miss a payment. You’re probably not going to charge interest or late fees to a friend. You’ll give them a no-interest loan with no fees to be nice.

That’s why loans between friends and family tend to fall at the bottom of most people’s financial priorities. Since there are no real consequences to not paying you back on time, the borrower doesn’t have much incentive to do so, either. They will if they can, but your loan will come after all their other bills, and that probably includes non-essential lifestyle expenses. Don’t expect them to cancel Netflix or stop going out to eat just to pay you back.

It could ruin the relationship

Loaning someone money seems like a decision that could strengthen the relationship, since you’re doing them a favor. Ironically, it often ends up doing the opposite.

As Ramsey explains, when you loan someone money, it changes the dynamics of the relationship. Until they’ve paid you back, you’re the lender and they’re the borrower. This may not matter at first, but it will if they don’t pay you back when they said they would.

If that happens, you might find yourself internally questioning all of their spending choices. Why are they posting pictures of meals at expensive restaurants or new shoes they’ve bought on social media? If they have enough money for that, shouldn’t they have paid you back already?

The way the borrower sees you could also change. Even though you’re in the right, they might see you as an annoying nag when you remind them that they haven’t paid you yet.

Maybe everything goes back to normal afterwards. But there’s also the possibility that you two see each other differently. You think of them as someone who took forever to pay you back, and they think of you as someone who hassled them way too much over a loan.

Should you ever loan money to friends and family?

Ramsey says it’s okay to give friends and family money if you have your finances in order, but you should never loan them money. I’m inclined to agree with him about this. Loaning people money is usually a massive headache. I’ve done it a few times, and although I always got paid back, it took much longer than promised each time.

If someone wants to borrow money, there are plenty of great personal loan options available. If they’re coming to you instead, it’s probably for one of two reasons:

They don’t have good credit. This could be due to previous financial missteps, like not paying back loans or credit cards on time. If a bank doesn’t want to lend someone money because of their credit score, you should probably think twice, too.They don’t want to pay interest. No one does, but that’s normally how loans work. Keep in mind that you could be earning interest on that money in a savings account or investing it, so you technically lose money when you loan it out for free.

There’s nothing wrong with saying no when someone asks you for a loan. You may decide it’s worth it, if you really want to help someone out, but just be aware that it often doesn’t go as smoothly as planned.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.

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