MoneySkills with Nelson Letshwene

Money & the psychology of money

Why do People want to borrow money from you?

Forex Money for Exchange in Currency Bank

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Have you ever wondered why people want to borrow money from you? Are they just taking chances or have they read some signals from you? What are some signals that they may be seeing? They may see the car you drive that says I can afford this; or they may see the house you live in and the luxurious or comfortable furniture and lifestyle you lead. They may see your business and suspect that it’s profitable; or they may have heard that your employer pays well.

Every coin does have two sides, and here is the side they may not see about you: They may not know that your car is financed by debt; they may not know that there is a heavy mortgage on your house; they may not know that your furniture was bought on hire purchase and should you falter, it may all go under the hammer. They may not be aware of the line of credit that is sustaining your business. And about your generous employer, they may not even know what salary band you are on, or what other commitments you face.

When someone wants to borrow money from you, you have an opportunity to either sustain their perception about you, or give them a new perspective. Lending and borrowing among friends and family creates a new dynamic, which, if not handled well, could destroy the harmony that existed before. Therefore, let there be a conversation and not a hasty action. The conversation should include frank points from both sides. If you know you cannot lend them money at all, for whatever reason, don’t even go to the extend of asking how much they intend to borrow, because that creates an expectation. Declare your position immediately, and start helping them to explore alternatives.

Don’t forget, almost no one asks for money without a story; and most stories are meant to arouse your compassion. If you get lost in their story, you might lose your logic and get sucked in emotionally, which might lead to a quick decision to help, which might be regretted later.

If you think you can lend them some money, you can take the conversation to the next level. Without saying how much you have or how much they think they need, let the discussion move to the purpose of the loan. By discussing the purpose first, you might help them to find a solution that does not need any money, or perhaps not as much as they thought they needed.

Once you’ve agreed on the amount, do not skip the terms and conditions, regardless of how awkward or uncomfortable this step may be. It is the absence of terms and conditions that often complicate your demand for your money in the future, which compromises the relationship. Discuss the repayment plan and agree on it. Let there be a witness in the form of a common friend or another family member. Let it be in writing, with witnesses signing. Even without legal language, let it be clear how much is at stake, the time involved and the repayment process, whether in instalments or lump sum, and the costs involved, even if it’s just the bank charges without you charging interest.  All this can be done with a light heart and in the midst of laugher. (There might not be much laughter if these terms are broken).

Transfer the money or write a cheque or deposit in their account to create some paper trail. Avoid handing over cash, especially without a witness.

Don’t lend more than you can afford to lose. Don’t borrow more than you can afford to repay. Communicate any delays in the process. Respect your relationship and don’t jeopardise it because of the loan.

9 comments on “Why do People want to borrow money from you?

  1. Mo
    June 6, 2013

    Amazing. I like the logic behind it


  2. Victor Baatweng
    June 6, 2013

    Grt read. m insipered.


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  4. Katie Cassidy
    September 4, 2013

    If you are going to lend money to your relatives or family members you have to be extra careful because it can affect your relationship.When one is going to lend or borrow money he should keep one thing in mind i.e. don’t lend more than you can afford to lose and don’t borrow more than you can afford to repay.


  5. Loretta
    January 28, 2014

    Wow, so profound!


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    June 25, 2014

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    July 1, 2014

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  9. Ronnie
    January 23, 2015

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This entry was posted on June 6, 2013 by in Personal Finance and tagged , , , , , , .

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