Lending Money: The Hidden Dangers | Union Community Bank
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Neither a Borrower Nor Personal Lender Be

What might possibly be the best personal finance advice ever given didn’t come from a Nobel Prize winning economist or a captain of finance. It didn’t come from a billionaire like Bill Gates or from a President or world leader.

It was actually the bard, William Shakespeare, who provided us with the most insightful, simple, and well recognized expression about personal finance of the past 400 years– “Neither a borrower nor lender be.”

But did you know that the phrase doesn’t end there? The full expression is “Neither a borrower, nor a lender be; For loan oft loses both itself and friend.” It’s not just a suggestion that loaning and borrowing money might be a mistake – it’s a warning against personal loans. Originating from the classic play Hamlet, this advice was passed from father to son along with other famous lines like “To thine own self be true.”

We are never going to be able to one up Shakespeare when it comes to turning a phrase, but we can elaborate on why his advice is as sound today as it was in the early 1600’s.

Lending money: the risks

Technology is making it easier than ever to exchange money from person to person. The creation of apps like Venmo means that it’s easier to split a dinner bill or collectively pay for a friend’s birthday present. The simplicity of the exchange is a double edge sword. Yes, the process may be less of a hassle, but that doesn’t mean that we as a society are suddenly more reliable when it comes to paying our friends and family back.

Imagine this scenario if you will – you have a friend contact you one day in a panic. “Hey I really hate to ask, but I’m in a jam and I don’t know what else to do. Rent is due in less than a week and I’m $500 short, could you help me please?” And because you are a good friend and you don’t want them to be homeless – you loan them the $500.

But then a month passes and your friend has made no attempt to pay back your personal loan. You think, that’s ok, money is probably still tight for them and I don’t need it back right away. But then one day you see them on social media going on a nice vacation and you think, wait a minute, they’re spending money on vacation when they couldn’t afford rent? And for that matter, if they have extra money to spend, then why aren’t they using that to pay me back? Suddenly, this becomes about a betrayal of trust and before you know it, you’re looking at a situation where you’re going to lose your friend – and any hope of getting that $500 back.

Now imagine if that loan you gave out wasn’t $500 for rent, but a sum in the thousands. Suddenly the danger of lending money becomes very serious very quickly. The worst part is that situations like this are so easily avoidable.

There’s a better way

Utilizing a bank for a loan is infinitely easier than working out personal loans with no risk of damaging the relationships that mean so much to you. Having a structured agreement means there’s no stressful gray areas. So the next time you need to borrow money, or someone asks you for a loan, consider politely saying that you can’t. If they ask why, try saying “because Shakespeare told me not to.” If that doesn’t work, explain that you value your relationship with them too much and you’d rather not risk it when there’s a better way to go. Suggest to them instead that they should look into getting a loan from the bank.

Of course you could still decide to give out personal loans but be prepared for a scenario where you lose that money, your friend, or both.

Union Community Bank offers loans with all of the friendliness you’ve come to expect from your local community bank – without the personal financial risk. Find out more about how to apply for a personal loan today.

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