Endless are the tales of friends and loved ones who loaned money but did not get it back. My father was a good business man. He advised against loaning to friends. Collecting overdue business debts from friends especially gets awkward. Hot words can erupt. Long term friendships can be strained, ruptured. There is no joyful time to foreclose on a mortgage or say your time is up. What is the wise policy? Below are some insights from the Bible and others.
Biblical categories of loans. gifts:
To my knowledge the Bible recognizes these three types of lending/borrowing:
- ‘mercy’ loan to a poor person at no interest – Exodus 22.25-27
- commercial lending institution can legally, morally make loans, Matt 25.27; Luke 19.23
- personal loans /co-signing notes for neighbors, strangers are warned against three times in Proverbs. It’s can be unwise, hazardous. “A man lacking in sense pledges, And becomes surety in the presence of his neighbor.” (Prov 17.18 NAS)(Prov. 6.1-5; 11.15)
- A fourth option is to give the money to a person, worthy cause or charity. This would not usually refer to business loans of course. Be generous to the poor and needy
Loans to friends/loved ones incur great risks for both borrower and lender! Many, many personal loans are never repaid. We know how unexpected setbacks or cost overruns can arise hindering repayment of the loan and or interest. The borrower can assume that as circumstances have changed, he should not be held accountable to fulfill the agreement he signed in good faith. They thank the lender upfront then blame him if they cannot repay on time–or at all. Should he have not lent in the first place?
God knows that unforeseen circumstances do often arise! We are not able to predict the future. Our knowledge is limited. So what is the answer? We should respect the advice of the One who can foresee the future. God knows what can lie around the corner. So what is His wisdom? Avoid debt in the first place! And obviously avoid excessive debt.
Borrowers often violate this principle, this warning to avoid debt. Then when the dubious loan goes bad some get bitter, blame God or the lender for their predicament, their decision. Too many Christians learn the hard way about personal loans to relatives. I’ve heard two sad stories this month involving bad personal loans to siblings.
“Due payment of debts (Rom_13:8): “Owe no man any thing”; that is, do not continue in any one’s debt, while you are able to pay it, further than by, at least, the tacit consent of the person to whom you are indebted. Give every one his own. Do not spend that upon yourselves, which you owe to others.” The wicked borroweth, and payeth not again, Psa_37:21. Many that are very sensible of the trouble think little of the sin of being in debt.” – Matthew Henry Commentary.
Charles Spurgeon, J. Hudson Taylor and some Christian organizations have policies not to go into debt. “Certainly no one should get into unnecessary debt, or sign contracts he cannot maintain. “Thou shall not steal.” But to make Romans 13.8 (“Owe no man any thing”) apply to all kinds of legal obligations involving money is, to me, stretching a point.” – Warren Wiersbe. I agree with Wiersbe.
Admittedly living in the debt controlled USA economy, espousing a different perspective may seem odd. Yet personal bankruptcies abound. Debt seems normal, natural. Does the Bible agree?
Borrowing can be addictive. Can one’s balance sheet, credit rating, cash flow and asset reserves justify borrowing/ loaning the money? some businesses can demand large and untimely infusions of cash. Lacking cash reserves or cash flow, additional loans become a downward spiral of necessity. Joseph wisely used the seven good years to pile up wheat for the seven bad years. He built up his ‘cash reserves’ for the worst of the worst of conditions.
Proverbs admonitions protect both the lender and the borrower. Proverbs warns in effect against co-signing a note for some one, “going surety.” (Prov 6.1-5; 11.15; 17.18). Three times Proverbs addresses this. This implies that borrowers do not always deserve a loan/are a good risk/have good credit. It assumes some borrowers do not qualify for a loan.
It is wiser, safer and less stressful to simply avoid loans to friends and relatives. Our priority is to protect friendships and resources. Leave loans to the lending institutions. They have more objectivity and experience. Lenders usually do no favor getting one into debt.
But at best debt is debt. Debt enslaves. Avoid debt. Many young people want to start out in life with all the materials possessions their grand parents took decades to buy. Learn to be patient.
Better to have an older car paid for than a newer one repossessed when one loses his job. Cheaper housing can save tons of money each month. Keeping up with the Jones can drive your broke. Live above peer pressure, social pressure and pride.
Not a few prospective borrowers need financial counseling more than a loan. Some people are not living within their means. They need to develop patience and self control. Another loan is not going to solve their deeper issues. And if they feel free to ask me for a loan I feel free to discuss how they got in this situation! Yes.
Some do not save for emergencies. Others are job-challenged and some are in trouble through no fault of their own. One size does not fit all. Ergo, a loan should not be option one.
If one is desperate enough to dodge the biblical warnings to avoid debt, should they be desperate enough for some financial counseling? Before a potential lender gets one into debt, should he first help him think through other options? If one cannot make it without debt in good times, how will he fare in the hard times?
King Solomon in Proverbs takes the perspective of the lender–don’t loan. Protect your funds, preserve the relationship and hopefully help them into a new way of thinking. Debt is unwise both for the borrower and the lender! Avoid debt. Extending money to one who needs financial counseling or addiction recovery is not helping them. It is hurting them. Be part of a creative solution. Help them get the recovery counseling/program they need. Do not enable a bad habit.
Key question: Ask if they already owe other money and about how much. If others have not been repaid why/when would you be? Run. Flee. What more do you need to know? End of talk. Done.
Some come to a friend or relative to get more relaxed terms than a loan company would give them. They want a Sugar Daddy loan. This attitude might be made clear if they are asked what they are putting up for collateral (tools, lawn mower, car, boat, gun collection) to secure a loan? If they have no assets that can be a warning light. Asking for a reasonable interest rate, late fees, balance sheet, credit score dispel the Sugar Daddy attitude. Some will say, “never mind, just forget the loan” at this point. You are not the soft touch they imagined.
Is it wiser to reply?: “Tom, Sally, brother-in-law, fellow deacon, golf partner, you know I love you. I want to place higher priority on our relationship than my entering the banking business. Many loans just don’t work out. They harm close relationships. Despite the best of intentions, things happen one cannot control.” ( Those deserving of loans have no shortage of lending institutions available to them.)