At a Glance

You’re out with a group of friends. You use your card to pay for dinner and ask people to Venmo you – it’s no big deal, right? But mixing friends and money in that way can be disastrous, according to a new CreditCards.com study.

More than 3 in 5 U.S. adults have made a personal loan or paid a group expense with the expectation to be paid back. Out of those people, 59% have reported a bad experience. Never seeing their money again was one of them. Some respondents experienced damaged relationships and even physical altercations.

If you care about your friendships, think twice about lending money to friends. As Ted Rossman, a senior industry analyst at CreditCards.com, shared in a CNBC article, “feelings get hurt, and credit scores get hurt.” Ouch.

What if your friend is in need?

It’s fair to wonder where you should draw the line if you care about being a good friend and have the means to help. You know what they say: A friend in need is a friend indeed. So, should you just be heartless and say no the minute a loved one in a tough spot asks to borrow money? Not necessarily, though there are a few things to keep in mind before agreeing to a loan.

The first one is the reality that you may not get your money back. The second one is that things may get awkward if your friend feels ashamed about not being able to pay you back, if they start avoiding you because of the money they owe you, or if you end up resentful about the situation. Those are all very real possibilities. A LendingTree survey revealed that more than a third of lenders have not been paid back by their friend or family member and that 24% of them regret lending the money. The top five consequences on the relationship involved hurt feelings, decreased contact, resentment, verbal arguments and uncomfortable family gatherings.

Over one third

of people who have lent money to friends or family have not been paid back.

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FinFact

Treat the loan like a gift or set hard boundaries

One way to avoid these unfortunate consequences is thinking of the loan like a gift. Also,never lend money that you can’t afford to part ways with. A Reddit thread on treating loans to friends and family like a donation got over 100 responses. “If you must loan money to someone, treat it like a donation. If, for any reason, it doesn’t come back, it shouldn’t affect your life too much. I have seen so many people lend money and that money never comes back and they really depend hard on it. You end up losing a lot of friends and family too,” wrote the user who started the threat.

It’s also important to set clear expectations around repayment: Will your friend send you the money in chunks? When will they pay you back? This doesn’t guarantee that there won’t be any issues, but it at least sets clear expectations. Personal finance blogger Allan Liwanag told Yahoo Finance that he lent $8,000 to a close friend from college for home improvements. He agreed to lend the money on one condition: The friend agreed to give him postdated checks to repay him over several months. The agreement worked. “My intention was really to help, but I also wanted to make sure he understood the condition and that I would be able to get my money back,” said Liwanag.

Don’t self-abandon – if helping doesn’t feel right, you can always suggest financial resources to your friend to guide them towards solutions that don’t involve borrowing money from you.

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The bottom line

Lending money to friends is risky and often ends badly. If you feel compelled to help a friend in need, be at peace with the fact that you may never get your money back – and set clear guidelines around how they’ll pay you back.

Open communication is key to avoid resentment, as some people may avoid you out of guilt: 65% of borrowers in the LendingTree felt guilty about asking their family member or friend for a loan, and people in the Reddit thread mentioned above lost friends even though they were okay with the fact that they hadn’t been repaid yet because of said guilt.