It can be awkward when a friend asks you for a loan, especially when you’re not sure if you should do it. Even when you want to help, there are times when it’s better to decline. Here are a few situations when you should tell your friend that a loan just isn’t possible at the moment.

When You Can’t Afford It

If a friend is asking you for a loan that truly isn’t in your budget, don’t put yourself in a difficult situation just to help them. Giving a friend a loan can be a nice favor if you’re financially able, but there are also plenty of other loan options available for people.

When Your Friend Isn’t Financially Responsible

There are many financially irresponsible people out there who don’t stick to a budget and overspend every month. It’s not a smart way to live, and it often takes a wake-up call for them to change. That won’t happen if you give them more money to spend, and at that point, you’re just enabling them. If you know your friend is a big spender who could be close to bankruptcy, loaning them money is a bad move. You’re enabling them when they should be dealing with the repercussions of their actions.

When They Haven’t Repaid You in the Past

Loans aren’t the time to have a “three strikes, you’re out” policy. People who take your friendship seriously will make sure that they repay any money they borrow from you. People who want to take advantage of your good nature will keep asking for more without bothering to pay you back. Never give a friend a loan if a previous loan hasn’t been repaid.

When You’re Not Willing to Lose the Money

Although you hope your friend will pay you back when you’re kind enough to lend them money, it’s never a sure thing. They could lose their job and all of a sudden, paying you back isn’t a priority. Even if you get a signed contract, enforcing it would mean taking your friend to court. When you loan a friend money, you can’t be sure you’ll get it back, which is why you should never make a loan larger than you’re willing to lose.

In the End...

Finances and friendship rarely mix well. However, that doesn’t mean you should avoid helping friends in need.

You can refer them to a loan advisor to apply for a personal loan to help them out. If you feel as though they might need help making good money moves, have them take the Good Money Moves quiz. Regardless of what you choose, take time to think through the situation to ensure you’re making the right choice.