Money Manners: Common Questions Answered

April 10, 2008 — -- What should I do if I borrow an item and either ruin it or return it damaged?

As the borrower, you absolutely should feel obligated to return the item in the same condition in which you received it. If something happens, you should offer to replace the item or if possible, have it repaired. Not all borrowers recognize that damage has been done. When this happens, you need to determine how valuable the item is to you — is it worth pointing out the issue to your friend? Are they in a financial position to replace the item?

That said, my advice is to think through these issues before you loan an item. You also may want to consider whether your friend tends to be responsible with their own things as well as the property of others. Just remember, you are not required to lend your possessions to others — however, reciprocity does come into play sometimes, so if you are not comfortable lending items to certain people, do not expect these same people to lend you their things.

Financial loans to family and friends can be tricky. What is the best approach, especially for those who find themselves in the role of lender?

When asked for a loan, first and foremost, figure out if you can comfortably afford to part with the money. You should also think about how you would feel if the money was not repaid — could you move on and consider it a gift?

If you decide to move forward, communication and documentation are essential. Although a smaller loan may only require a handshake, loans of larger amounts should be documented in writing. A "larger" loan is any amount that is substantial to you, whether it is $1,000 or $15,000. Once the terms of the loan have been agreed upon, do not hang the loan over the borrower's head and avoid meddling in their financial affairs. If they are holding up to their end of the bargain, do not offer unsolicited advice as it can put a strain on the relationship.

Drafting a loan agreement sounds complicated. Would you need to consult with a lawyer?