3 Core Principles When Lending Money to Others
In life, we inevitably find ourselves standing on the fine line between lending and borrowing money. Current societal reality shows that many people lacking capital for startups or business ventures tend to turn to relatives, friends, or salaried workers who have saved up a small capital to borrow money as financial leverage . What seems like mutual assistance actually hides an extremely high risk. The essence of business investment or entrepreneurship is "buying risk", and the failure rate is always very high. When business fails and borrowers go bankrupt, they not only lose their careers but unintentionally drag friends, siblings, parents, and even entire extended families into mounting debt, ruining the lives of those around them as well .
We are no stranger to common everyday situations: close friends suddenly turning into strangers or even adversaries over an unrecoverable debt of just a few thousand dollars ($1,000–$2,000 / tens of millions of VND); or families descending into chaos with blood siblings disowning each other simply because the borrower repeatedly delays repayment. The biggest mistake here is that we often lend money based on emotion and vague promises rather than adhering to minimal financial principles .
The other day, I watched a great video by Mr. Tuan Tisino and wanted to share the insights from that video with everyone. The perspectives Tuan shared closely align with my own thoughts on lending money to others (or even the reverse, when borrowing money from someone). These are very basic and practical principles, but we sometimes gloss over them, only realizing their truth after paying a heavy price in lost money and broken relationships.
Note: These principles also apply to yourself when borrowing money from others!
1, Why Does Lending Money Easily Destroy a Relationship?
There is one thing I realized after witnessing close relationships break apart over just a hundred dollars or so ($100 / a few million VND): Money is not merely numbers; it carries an invisible pressure powerful enough to snap even the strongest bonds.
Many of us often think that lending money to loved ones is a way to protect relationships. However, reality proves otherwise. A relationship does not start breaking when the other party begins defaulting; it has already silently cracked from the moment the nod to lend money occurred.
Below are 3 explanations I summarized from the perspective of Guiguzi combined with modern behavioral psychology.
a, The disappearance of balance: One is the creditor, one is the debtor
The essence of a healthy and sustainable relationship is equality. Before money enters the picture, you and the other person can sit for coffee, debate openly, and share joys and sorrows without watching your step.
However, once the borrowed money is handed over, the rules of the game change immediately. No matter how hard both sides try to act normal, the balance is completely shattered: one has turned into a creditor, and the other has officially become a debtor. The position now has a clear hierarchy: one side holds the power of waiting, while the other carries the burden of obligation. When a relationship no longer maintains equality, the first thing lost is the natural respect and ease. Conversations gradually fade, become more guarded, and a quiet distance emerges between them that no one dares to touch.
b, Natural avoidance mechanism: No one wants to face someone who clearly sees their deficiency
Humans have a very primal nature: everyone wants to save face and protect their ego in front of people they know . When falling into financial hardship and having to ask for a loan, borrowers have already lowered their own standing.
Because of this, they always carry an underlying defensive mindset: they strongly dislike having the creditor (no matter how close they were before) see or remind them of their inadequacy and weakness. Every time they see a phone call, a message, or even the face of the creditor, a high-pressure defense mechanism is triggered in their mind.
To escape that feeling of insecurity and discomfort, they choose avoidance. They start replying to messages slower, declining joint gatherings, and appearing less in places where the creditor is present. They avoid not necessarily because they are bad people or want to default, but because they lack the courage to face the person who holds the "secret of their deficiency".
c, The shadow of suspicion: The emergence of a subtle monitoring mechanism
The mindset of the lender also indirectly kills the purity of affection. When you lend money, even if you tell yourself to be relaxed, you still unintentionally fall into a complex psychological syndrome: behavioral scrutiny syndrome.
The relationship at this point completely loses its innocence. Every day while scrolling through social media, if you see the person borrowing money buying new clothes, checking in at a nice meal, or posting vacation photos, a thought immediately arises in your mind: "Why do they have money to go out and enjoy themselves, but no money to pay me back?". You start judging and weighing every piece of their spending behavior. Conversely, the borrower lives in defensiveness, hiding their spending or feeling uncomfortable from being monitored. Initial sincerity is completely replaced by mutual suspicion and subtle surveillance.
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In the end, the relationship dies slowly and quietly. No heated arguments, no harsh insults, just both feeling tired and burdened standing in the same atmosphere where the debt exists. Lending money to preserve affection, but the outcome received is losing a close relationship and losing the positive view once held for each other.
2, Three Core Principles When Lending Money
To protect ourselves, protect our assets, and even protect our relationships, before reaching into our pockets to lend money to others, ask them the following 3 questions — these are also the 3 core principles that must be clarified.
a, Question 1: What is the money borrowed for?
This is the first and most fundamental question. When someone comes to you asking for a loan, you have the right and obligation to know the purpose of that money. Are they borrowing for an emergency medical treatment, personal consumption, or pouring it into a get-rich-quick business project? The purpose of borrowing reflects the risk level of the loan. If it is for business investment, you need to understand that the risk of failure is very high. Requiring the borrower to clearly state their purpose is not nitpicking, but a way for you to evaluate whether the money you put in has a chance of generating returns or at least preserving capital.
b, Question 2: What is the repayment plan?
Never accept vague answers like "when I have it I'll pay back" or "in a few months when work is done I'll send it back". A responsible and serious borrower always has a clear, specific repayment and interest timeline. How long is the loan expected for? Is it paid monthly or lump sum at the end of the term?
Additionally, from a fair financial standpoint, if they borrow your money for business, the interest rate they pay you should at least be higher than bank savings rates. Because when you withdraw money to lend to them, you forego safe interest from the bank and assume capital risk on their behalf. If a borrower cannot even calculate a specific repayment plan, it proves they are not ready or capable of managing that money.
c, Question 3: Is there any collateral?
This is perhaps the most pragmatic and uncomfortable principle, but it is the sole safety net for your assets. Look at how banks operate: they possess the strictest risk control processes, yet they never lend based on mere promises or prestige. The only thing banks release funds against is collateral (in Vietnam, the most common collateral is real estate).
Therefore, when lending a large sum exceeding your personal ability to "give away / accept losing", you must require collateral of equal or greater value than the loan, such as a car, land, or anything liquid . If they cannot repay within the committed deadline, that asset will be used to offset your loss (remember to have clear written documentation when lending). All commitments without collateral, in the end, are just words blowing in the wind.
Bottom lines
In summary, personal finance management has never been about emotions. When faced with a borrowing request, always remember to thoroughly ask the borrower three questions:
- What is the money for?
- What is the repayment plan?
- What is the collateral?
If the borrower cannot satisfy all three conditions, it is best to close the conversation.
Furthermore, I personally resonate with a mindset on lending money by Guiguzi:
"Whether to lend or not is your right, while whether to repay or not is the borrower's matter. Once you decide to give money to someone without any binding conditions or collateral, mentally accept from the start that the money may be lost forever. Preparing this mindset in advance will lighten your heart, keeping you from falling into resentment or torment if the worst-case scenario occurs."
However, instead of choosing to lend and then praying for repayment, we can completely choose to take initiative. Learn to say "no" decisively if you feel uncomfortable or notice the loan lacks safety assurance principles. Many fear refusing will offend or ruin relationships with friends or family. But reality proves the opposite: proactively saying no from the start is often the best way to preserve relationships, protect mutual trust, and above all, safeguard your own hard-earned sweat and tears.
➝ Continue reading articles in the personal finance series to equip yourself with more basic financial knowledge and skills!
Thank you for reading my article!
Kim,