Borrowing money from friends is a great way of meeting your immediate/urgent monetary requirements. It offers you a chance to repay the loan as per your convenience. There is no rate of interest (in most cases). Most importantly, you are not required to fill any document while borrowing money from a friend.
In all fairness, borrowing money from friends is quite tempting. Some of your best friends (who trust you) will never think twice before lending money. Well, trust is a big thing, much bigger than profit and loss, isn’t it? Lending money adds to an individual’s goodwill. As a borrower, you are considered trustworthy when you repay the loan amount on time (again and again).
You can also avail easy loans from financial institutions, such as Southern Finance in case your friends and colleagues have refused to lend money to you.
Quite frankly, lending money to friends is not a good idea at all, here are some reasons behind it:
They came to you because they couldn’t get bank loans
This could be a possibility. People ask for loans from friends, colleagues and relatives when financial institutions refuse to provide loans to them. Their credit score might be a problem. If you have a large number of bad debts against your name, then financial institutions will think twice before giving you loans. You might end up encountering bad debts if you lend money to a friend who does not have a good reputation with the banks and other financial institutions.
The reason might not be genuine
Yes, there is a possibility that the reason behind borrowing might not be genuine. Many people have this habit of investing the borrowed money in risky businesses (stock market and all). Investing in the stock market with the borrowed money in the hope of making a profit is a bad idea. In this way, your money runs the risk of getting squandered. You should, therefore, be very careful while lending money to people (no matter how close they are to you).
You might not get your money back
This is a possibility. There are chances that your friend might run away with the money. Getting duped happens to be a sad-sad thing. A friend you trusted with your hard-earned money might run away and leave you shocked and perplexed. Not all friends are like that but the possibility of such mishaps and frauds cannot be taken out of the picture.
Asking the person to repay can get problematic
Switched-off smartphones, nobody at home, etc., etc. All of these possibilities are very much real. If you are a frequent lender, then you might have encountered such problems. Calling people on their phones, asking them to repay the amount can turn out to be quite an awkward situation. They might not answer your phone calls for days. You might find messages with blue ticks on WhatsApp with no replies whatsoever. All of these factors make lending money to friends a complicated affair. You do not want to pester your friend but you also want your money back. You cannot afford to incur losses because of your friends.
Trust is a good thing but trusting someone blindly can turn out to be quite a tricky affair. If you really want to lend money to friends, then carry out a few background checks. Ask around from other lenders if you wish to cross check your borrower friend’s loan history. In this way, you will be able to stay away from frauds. Do not lend money to people who appear dicey.