Before reaching into your wallet for a friend, here’s what you should ask yourself:

Can I afford to lose what I loaned?

Loaning money to a friend is simple if they pay you back when they say they would. This is however not a guarantee, and in some instances, your friend might simply not be able to return the money.

Unless you can afford to lose what you loaned, money can cause a severe strain on a friendship.

Would I ever lend my friend money the second time?

In the event that your friend manages to pay back the money, how long they took to pay it back, as well as whether they repaid it in full or not are important aspects to consider. If your friend is yet to pay you back the first time, but asks to borrow money the second time, you would need to be aware of the various possibilities. These include the fact that your friend might manage to pay some or all the money back, and that they could also fail to pay back all that they owe you.

Is this a loan, or a “gift”?

Agreeing to lend someone money, especially without formalising it, can easily turn things murky. What you thought was a loan might end up turning into a “gift”, and your friend might decide to not pay you back as a result of the lack of formality. It’s always a good idea to formalise the process in some way, whether through a simple email or written agreement, or a formal contract if possible.

Am I prepared to be patient?

You might get angry when seeing your friend go out every night and spending money, yet have claimed to be struggling to repay you. This can lead to resentment, and even lashing out. Unless you’re willing to be patient and trust your friend’s word, lending money can turn a friendship into a minefield.

Is there another way I can assist my friend?

Sometimes it’s not so much the money that your friend needs, but advice or support.

Find out if you can help them out in other ways, such assisting them with better budgeting, helping them get a personal loan that fits their financial profile, or advising them on how to save. Your friend should not only see you as a source of money, but also as a pillar of support.

For tips and advice on various loans and how to be smart with your money, visit Hippo.co.za. You can also find them on Twitter, or like them on Facebook.