When You Loan Money to Family

Imagine that a family member comes to you with a sad story regarding finances, and they need a loan for a car payment, a house payment, to cover a phone bill, or for something they've always wanted. A deep sense of obligation, kindness, and the love of family prompts you to pull out your checkbook and write a check to cover the cost. After all, you're family, and family members should be trusted to fulfill a loan given to other family members. You expect to get the money back since they asked if they could borrow the money, but the word borrow, and the word loan, might not have the meaning you thought it did.

Many people carelessly use the word borrow when asking for items or a loan they know they'll never pay back, and giving a loan to relatives is sometimes the beginning of the end of relationships. Sometimes family members feel they can get away with not paying back a loan to other family members, because no matter what, family is always family, but this assumption couldn't be further from the truth. Sadly, families have been ripped apart at the seams because of unpaid loans, and when you loan money to family, you must be prepared in advance for the chance that you won't get that money back.

The generous act of providing a loan to family members, friends, or others who are down on their luck, just might make you realize that people are not always who they appear to be, especially if they don't always pay back debts. Brothers, sisters, kids, and even parents can end up conveniently overlooking a loan, and the following true story is an account of my husband's experience of loaning money to his brother.

Money for Nothing and Living Practically for Free

A few years before I met my husband, he allowed his older brother to move into his home so someone would be available to supervise his teenage daughter. My husband is a truck driver, and having his brother in his home would enable him to go back on the road during the week and come home on weekends. He allowed his brother to live in his home for $40 a week plus half of the utilities. This arrangement was an opportunity of a lifetime for his brother since during the week he would have a three bedroom house with a full basement practically to himself, and practically for free.

Although his brother was only required to pay $40 a week and half of the utility bills, on many occasions he claimed he didn't have the money. He worked as a machine operator in a factory making approximately $14 an hour, and although all he had was a vehicle payment and the other typical bills everyone else has, there were times when he had to pay the $40 a week in $10 installments, and he rarely helped pay for groceries. My husband thought this was odd, but he allowed his brother to get away with it since his he was supervising his daughter. He was unaware that he was being used, and he fully trusted his brother who was really untrustworthy.

Besides living in my husband's home for practically nothing, he also asked for a loan on at least two different occasions. One loan was meant to pay a lawyer for his bankruptcy! It's amazing that someone with very low living expenses and a fairly good income would have to file bankruptcy, but the man never learned to manage his money. Being the kindhearted person that my husband is, he gave his brother the loan for the money he needed. At first he attempted to make payments on the loan, but he eventually stopped paying altogether, and after years of not paying a dime, he still owes my husband a considerable amount of money on more than one loan.

Lesson Learned

After my husband and I decided to get married and live in my home, his brother was given the option of staying in the home they once shared. He chose to stay, but for the first six months after my husband left, he continued paying a mere $40 a week, and we continued paying half of the utilities. My husband finally told him he would have to pay the full amount of the house payment as well as cover all of the utilities or the house would be rented or sold. His kindness was quickly wearing thin.

Most of the time, my husband's brother paid the house payment late, and he never paid the utility bills on-time. To add insult to injury, he stopped calling my husband to ask how he was doing, and he stopped coming to our home to visit, even though we went out of our way to make him feel welcome. He only called my husband when he wanted something. Although he was given the option of staying or going, he was obviously angry because his meal ticket moved out and no longer agreed to pay his way.

The house has now been sold, and my husband and his brother no longer speak. He still owes my husband hundreds of dollars for the loan he stopped paying on a few years ago, and he also owes for past-due utility bills that he never bothered to put in his name. He used my husband as much as he could, and when my husband no longer allowed himself to be used, his brother no longer wanted anything to do with him. It didn't take long to see that my husband's brother was using him all along.

Although many people who loan money to family members are paid back, many are not, and just because someone is a relative doesn't necessarily mean they are any more honest than a stranger off the street. Unless you're sure your relative is the type of person who pays his or her debts, and unless you can afford to lose the money, it's in your best interest to say no when family members ask for a loan. Loaning money to family members is risky, and in the end you may find out as my husband did that you were being used all along.