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How to protect your finances when loaning money to a partner - a guide
31 May 2021
There’s a good reason many of us call our significant others our ‘partner’ or ‘other half.’ When you enter a relationship with someone, you become partners in a team. You have each other’s back through the good times and the bad — and sometimes, that means asking the other for help. But while it’s only natural to want to help out your partner in any way you can, things can get a little more complicated when it involves money.
Of course, we all want to believe the best when loaning money to a partner. You’ll loan them the money, they’ll pay it back, and that will be that. Right? But unfortunately, that’s not always the reality. Whether it’s a relationship with a messy end or a partner with poor financial habits, loaning money to a partner comes with inherent risk. In extreme situations, it can also manifest in financially abusive situations.
The good news is, it is possible to safely lend money to a partner, while learning how to protect yourself and your finances. Here’s how to protect yourself.
Set formal terms and deadlines
A bank wouldn’t give someone a loan without having formal documentation in place. So, there’s no reason why you can’t do that, too. You can use a simple loan template online to draw up a simple document outlining the terms of the loan. This includes the amount of the loan, the date you’re loaning it, on and when it will be paid back by and the instalments to be paid, where relevant.
Of course, this doesn’t mean that you don’t love or trust your partner. Instead, formalising the loan in this way helps ensure you’re both on the same page — which helps to eliminate stress and conflict later. After all, arguing about loaned money isn’t exactly romantic!
Plus, it helps keep your partner accountable and on-track to pay you back, which is a good thing for them as it means it’s not hanging over their head.
Get it in writing
It’s always best to have a paper trail of any financial transaction, even when loaning money to a partner. This way, if you ever find yourself in the middle of a dispute, you have your arrangement and the terms right there in writing. This will also be extremely useful in the unfortunate and unlikely situation you ever find yourself in court and need to provide proof of your loan.
Consider ‘securing’ the loan
Banks and other financial providers will rarely provide a loan without some kind of ‘security’ attached to it. This is the asset that is against the loan as a guarantee, in the scenario that the borrower does not keep their financial obligations.
Consider doing the same when lending to your partner — especially when it comes to more significant amounts of money. This could be designating a third party who will pay back the loan in the event they are not able to do it (such as their parents) or putting up an item as security, such as a watch or game console, which could be sold to recoup your money.
Use a loan-agreement app to protect your funds
There are some great apps out there designed to formalise and manage loan agreements with family, friends and loved one. Using these not only helps make the loan feel more ‘real’, but it can take a lot of the admin off your hands.
For example, Credi is a free app that helps you set the terms of your loan agreement, including a payment plan, interest rate and security, if you choose to have one. It even tracks repayments, and follows up with your partner and if they veer off track. Zirtue and LendPal also provide a similar service. These apps are affordable and easy to use, but help add another layer of safety to your loan.
How to protect yourself and safely transfer your funds
When loaning money to a partner, it’s always best to simply transfer the money (with terms and conditions in place) than to provide them with access to your bank account. You should never give anyone else access to your personal internet banking — even if it’s your partner.
As unfortunate as it is, providing access to your accounts opens you up to the possibility of having your money compromised or stolen. If you have a joint account with your partner, it is best to talk through how this is used by you and your partner so you’re on the same page. The same goes for giving for credit cards, including any additional credit card linked to your account. In extreme situations, this can lead to large amounts of debt racked up in your name, which you would be liable to pay back.
Tell a third party what you’re planning to do
As well as having proper documentation, it can also be worth letting a third party know that you have lent money to your partner. This may be a family member or a trusted friend.
By letting them know the date and amount you’ve loaned your partner via text or email, you have another back-up paper trail if you ever need to provide proof. Plus, they will be able to back you up in the event your partner ever tries to dispute the terms of the loan.
Don’t loan what you wouldn’t be prepared to spend
As unfortunate as it is, when you give money to someone there’s always the chance you won’t get it back. It’s important to keep this in mind when lending money to a partner.
Whether it’s your partner landing in more financial difficulty, conflict in your relationship or even a breakup, there are always situations where you may need to simply cut your losses. Sometimes, it’s more emotionally draining (and even expensive, when you’re talking about legal proceedings) to chase your money than it is worth. So, be sure to never lend more than what you would be comfortable parting ways with indefinitely. In the case that your partner requires more, you can always help them by pointing them in the direction of a formal loan provider.
At the end of the day, it’s always your decision as to whether you want to loan money to your partner. However, keep in mind that it does come with risk and can create more stress in your relationship. The good news is, there are many other options for your partner to seek financial assistance.
In many cases, seeking a loan from an established financial institution, such as from Westpac, is a better option, as they can help provide the right solution for your partner’s individual situation and are better prepared to deal with risk. That way, you and your partner can get back to enjoying life together, not arguing over money!
This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice.