Lending Credit Card To A Friend? Think Before You Go Ahead

Your best friend is going through some financial troubles and has requested to borrow your credit card to purchase some essential items. What do you do? As a good friend, you would readily give your card to your friend. In another instance, suppose your brother wants to buy a pair of headphones but he cannot pay for the entire amount upfront so as a good sibling you run the bill on your credit card. But what if this good deed comes back to bite you?

A recent research shows that the millennial generation is the kindest and most helpful generation of all time. But as the old proverb goes- the road to hell is paved with good intentions. Lending your credit card to someone might just be the start to a debt burden along with the risk of ruining your relationship. The younger you are at the time; higher are the chances of your financial doom.

Once the credit card leaves your hand and goes into someone else’s, you no longer have control over the spending. Most of the people who lend their credit cards to friends and family suffer a bad credit situation because-

• the borrowers over-utilized the credit card
• the person who borrowed their credit card refused to pay back the amount or to share his part of the EMIs
• they never got their credit card back

Despite understanding the risks of lending credit cards to others, most of us cannot say no when we are approached by a loved one in need. While it is in human nature to help others, we should be cautious when giving away credit card to anyone for use.

Also Read: The 2 Minute Guide to Credit Card Fraud

How Lending Your Credit Card can Turn Out Bad for You?

Giving your credit card to someone else is never a good idea as it will add to your debts and will have direct impact on your credit profile. Also, by sharing your details you are violating one of the most basic terms of your credit card so if there is a fraud, the bank will hold you liable.

Given below are a few ways how lending a credit card can impact your financial life.

1- Chances of Negative Impact on Your Credit Score

When someone else uses your credit card, he will not be as responsible towards it as you are. Remember that no matter who uses your credit card, it will be billed in your name and if payment is not made on time, your credit score will suffer. Several people have gone through this phase when they hand over their credit card to a friend but not being able to pay bills in time trashes their credit score. A bad score will make it difficult for you to get another loan in future.

2- These are Open-Ended Loans

When you lend your credit card to friends and family members, you cannot set any expectations as to when the amount will be returned. You have just extended your help to someone but the borrower is not under any obligation to pay you back within a certain number of days or months. So, you will never know when you are getting your money back. In the meantime, you will have to pay the extra EMIs towards the purchases they have made on your credit card. And given your relationship with the borrower, you wouldn’t be in a position to ask for the money back.

3- You might need the Money for Yourself

When you lend money to someone, you will definitely want it back. However, you will need the money too. Credit cards increase your purchasing power but at the same time they also help you in case of emergencies. What if you face an emergency situation or if you lose your job? In such cases, your credit card is a big help but if your limit is already spent out by someone else, you will be in a financial problem. Moreover, in case of those who have just started with their new jobs might find it even difficult to meet ends meet if new bills are ringing up on their card every now and then.

How you can avoid a situation like this?

If you put some thought into it, you are not really helping your friend by giving your credit card to him /her in case of a financial fix. On the other hand, you are creating a problem for yourself. There are a few things which you can do instead of handing out your credit card to a friend-

• If you can meet their needs with cash, you should do that instead of giving your credit card. This way, it would not add to your financial obligations as well as make the borrower more responsible toward paying you back.
• If you must lend your credit card to someone, provide them a timeline or a schedule for repaying the amount. If they are using your card to purchase something on EMI, you should ask them to pay the amount each month. This will help you avoid any misunderstanding.
• Once you lend your credit card to someone, there are chances that he/she might ask again for it. Do not be the go-to-lender of your group because this way you will be stuck in a vicious circle of debt.
• When you are not sure about your own financial situation, it is not a good idea to lend to someone- whether it is through direct cash or credit card. If your friend approaches you for help, tell them straightaway that you are in a financial problem yourself and cannot help them out.

Also Read: How to protect your credit card?

Final Word

Wanting to help is human nature but is it wise to do it by endangering your own financial condition? It is easier to use a credit card than real money because it allows you to spend but pay later in EMIs. Similarly, you friends or relatives will also find it easier to utilize the money on your card and given your relationship, there will be no personal deadline for repayment. So if they do not repay the money on time or do not share the EMIs, it will not only impact your financial condition in a negative way but will also jeopardize your relationship.

Whenever a situation like this arises, have an open discussion and politely refuse to lend your credit card, if possible.