Making Loans to Family Members

There's one all-important point to bear in mind in any situation like the one you're envisioning: whenever money is loaned, the relationship between the parties involved changes. It's no longer simply brother-sister, father-son, or friend-friend – it's borrower-lender. As a matter of fact, the Bible says that the borrower becomes a slave to the lender (Proverbs 22:7). That may sound harsh, but it's accurate. When you lend money to a family member, you have introduced another level of complexity into the relationship.

If a member of your family is in need, we would suggest that you seriously consider the option of giving him the money. After all, Scripture says that a man who does not provide for his family is worse than an unbeliever (1 Timothy 5:8). The virtue of giving generously with no strings attached, especially to those of our own household, is an important aspect of Christian character.

If you have reasons for believing that this would be impractical or unwise, then you should take steps to establish a formal borrower-lender relationship with repayment terms and interest rates clearly defined. Both parties should understand and agree to these terms. Don't leave anything to uncertainty or chance (as in, "Oh, just pay me back when you can"). Those terms should be documented – put in writing – so the expectations for repayment are plain to all concerned.

Make no mistake: however you approach the situation, lending to or borrowing from family members is an extraordinarily dangerous thing to do precisely because of the way it changes relationships. Paul writes in Romans 13:8 that we are to owe no man anything except love. If you have any doubts about it, we can assure you that borrowing and lending between family members will almost certainly get in the way of love at some point or other. We're not saying that it's wrong to get into an arrangement like this, but we do believe that it can turn out to be extremely unwise.

This would also apply in the case of cosigning on a loan for a family member – in other words, putting yourself in the position of becoming a surety for that person's debt. This is in effect the same thing as lending the money. The Bible has some strong things to say about the dangers of this kind of arrangement (see Proverbs 11:15).

For additional help and information on this topic, we'd encourage you to consult the resources and referrals highlighted below. Or if you have relationship concerns and challenges associated with this situation, please don't hesitate to give our Counseling department a call.


Resources

Complete Guide to Faith-Based Family Finances

The Total Money Makeover: A Proven Plan for Financial Fitness

Free and Clear: God's Road Map to Debt-Free Living

Surviving Financial Meltdown: Confident Decisions in an Uncertain World

Family and Personal Finances (resource list)

Referrals
Crown Financial Ministries

Dave Ramsey

Debt-Proof Living

Kingdom Advisors

Articles
Money and Finances

Breaking Free From Debt

Managing Money

Excerpted from The Complete Guide to Faith Based Family Finances by Ron Blue. Copyright © 2008, Ron Blue. Used by permission.