How to Lend Money to Loved Ones Without Messing Up Your Entire Relationship

Your cousin asked for a few hundred bucks to help cover rent. But it’s been months and you still haven’t been paid back. Do you remind her of her tab? Let it go? Swear off lending to friends and relatives ever again? We reached out to Dennis Cail, CEO and co-founder of Zirtue, a new app that simplifies the lending and borrowing process between loved ones, to find out. Here are his tips.

As if with most tough questions in life, it helps to have a framework for answering any request for money. Cali suggests you ask yourself these questions before responding: 

• What type of relationship do we have?
• What’s the length of the relationship?
• What’s the strength and trust level of the relationship?
• Is the relationship in good standing?
• Is there an outstanding balance from a previous loan?
• Can our relationship recover if they default on this loan?
• Can you live without the money in the event they can’t repay you?

About that last question: You should never loan money that you need for your own personal expenses, says Cail. “If you find yourself saying, ‘I’m going to loan you this money, but I need it back,’ that is the exact moment when you should stop and instead say, ‘I would love to help you, but I can’t afford to do that right now.’”

If you know you can’t swing it, Cail recommends a swift reply. “Most people, by nature, have a healthy appreciation for honesty and transparency,” he says. “Saying no early in lieu of searching for a reason or way to say ‘yes’ is almost always the best path forward to salvage your relationship.” He adds that this also allows your loved one to move forward and find an alternative.

Even if you’re dealing with a trusted family member, Cail says it’s critical to formalize the loan by putting every detail in writing with terms for repayment and interest. “Selective memory is real and you don’t want a lapse in memory to test your relationship for the worse,” he explains. Use a free loan agreement template, or a free app like Zirtue, which requires borrowers to sign a digital promissory note. (Zirtue then maintains a digital paper trail of how much is owed and how much has been paid—they’ll even nudge the borrower for you if there’s a missed payment.)

You never want to put yourself in a position where you’re chasing a friend down for money or ruining holidays with a strained relationship. If the terms of the loan and plans for repayment continue to drag on, it’s worth considering forgiving the debt and salvaging your relationship, assuming you can live without the remaining amount owed. However, says Cail, if you do find yourself in this situation, make yourself one promise: You will think twice before lending to this person again.