Beware the Ides of March: Don’t Lend to Friends

March 15 is famously called the “Ides of March,” which marks the approximate middle of the month. In Shakespeare’s Julius Caesar, Caesar is warned to “beware the Ides of March” and is later stabbed in the back by his friends. Most of us would like to think that our friends are better than that, and we trust our friends to help us out when there’s a problem.

Unfortunately, there is one scenario that has damaged innumerable friendships — lending money. When you lend money to your friend or when you ask your friend to lend you money, the friendship is being placed at risk. The same even goes when you “lend” someone your credit score by co-signing a loan for them, which makes you just as responsible as the other person for the debt.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

Friendships are tested when money is involved because suddenly the friendship becomes about something more than your mutual interests. Rather, one person becomes “beholden” to the other and an agreement is formed. When money is borrowed, the timeline to repayment is often far more relaxed, especially since there are no material repercussions when a payment is missed. If the borrower fails to repay on time and in full, the friendship becomes strained. If the lender asks for the money back, and if the borrower doesn’t pay it back, the friendship suffers. If one friend co-signs a loan that is later defaulted on, the friendship can crumble — especially when the co-signer finds themselves targeted by debt collectors, and sees a sharp reduction in their credit score.

Here are some tips to help you navigate this complicated situation:

• If a friend asks you for money, consider the consequences to the friendship if they do not pay you back. Don’t skip this question by assuming that they will definitely pay. Rather, think through what will happen to your friendship first.
• If a friend asks you for money, or to co-sign a loan, politely decline. Tell them that you want to help them out but point out that borrowing money can hurt a friendship and your friendship is too important to you. It’s hard to say no to a friend in need but it will help to keep your relationship strong.
• Offer to help your friend in some other way. Even a simple gesture like buying groceries for a friend in financial trouble, or providing a listening ear to their troubles, will not only be meaningful, it will help them without threatening your friendship.
• If you choose to lend to your friend anyway, establish a payment plan and stay on top of the loan. If you choose to co-sign a loan for your friend, consider putting the loan in your name so that you can pay it off (so it doesn’t ruin your credit) while your friend pays you back.

Friends help each other when times are tough. However good friends sometimes help each other by NOT lending money and by NOT co-signing a loan. It might not always be the easiest choice to say no to a friend in need but it’s better for everyone. The Ides of March can remind us that our friends don’t always have our best interests in mind.

[Free Resource: Check your credit score and report card for free with Credit.com]

Image: iStockphoto