Lending money to family and friends

Key takeaways

If a friend or family member asks to borrow money, there are several things you should consider.
You shouldn’t expect the money you lend to a friend or family member to be repaid.
There may be other ways you can financially support a friend or family member without lending money.

Things to consider before lending money to friends and family

From time to time, a friend or family member may ask you to lend them money. Especially if you’re a member of the sandwich generation, you may feel pressure to support an aging parent or child.

However, before you lend money to a family member or friend, here are some things to think about.

Is your financial position secure?
Can you afford to lend and potentially lose the money?
Will lending the money derail achieving your financial goals?
How will lending the money affect your budget?
How close is your relationship with the person to whom you’re lending the money and how will lending them money complicate your relationship?
Is your spouse or partner OK with you lending the money?

How to approach lending money to friends and family

Discuss their financial situation

Before you lend money, talk with your friend or family member about why they need the money and look for solutions other than you lending them money.

Create a written loan agreement

Write down the loan terms (length, interest, repayment schedule), making it a formal business transaction so both parties understand and agree.

Make it a gift

Even if you trust the borrower, something could happen that affects their ability to pay you back. So instead, look at the loan as a gift and if/when they pay back the money that’s a gift too. This expectation can help protect your relationship.

Set limits and boundaries

Make sure the borrower understands your loan/gift is a 1-time thing, and that you’re not their “bank”.

Other ways to support friends and family without lending them money

Help them with budgeting, saving strategies or financial education that helps them make the most of their money
Help them find resources, options or government programs that can help ease their financial difficulties

What's next?

Now that you know more about lending money to a friend or family member, you may choose to meet with an advisor, or if your workplace benefits are with Canada Life, contact a health and wealth consultant to:

Determine how lending the money may affect achieving your financial goals.
Discuss alternative ways to support someone financially without lending money.

The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.