A close friend/relative wants to borrow money. What do you do?

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Submitted by patientlywaiting on April 15, 2008 - 1:02pm

So a colleague of mine has a relative out of state who needs to borrow money to make mortgage payments while they refinance.

The borrowers promised that they have enough equity to refinance and pay back the loan within several months.

I advised against it.

But saying "no" may forever ruin an otherwise good family relationship.

What would you do?

Submitted by scaredyclassic on April 15, 2008 - 1:11pm.

it's OK to loan money, so long as you expect to get none of it back and that won't bother the lender. If you expect repayment and will be the least bit of disturbed if there's any problem in repayment, bad idea....

Drink Heavily.

Submitted by Ex-SD on April 15, 2008 - 1:52pm.

Been there................done that. publicdefender hit the nail on the head. It's o.k. to loan the money as long as you understand that most people will NOT pay you back. We live in a different world/times than the one I grew up in. It used to be that your word was your bond and the deadbeats were not so numerous.

p.s.
If you decide to loan the money, it will greatly benefit you to have an attorney (if it's a large enough sum that you're loaning) draw up a promissory note and add the cost for the lawyer to the amount that is to be repaid. If they don't pay and you decide to pursue the matter, that document will greatly enable you to get a judgement.

Submitted by DWCAP on April 15, 2008 - 1:51pm.

I would tell them that family and money dont mix well. If they dont need the money, maybe a gift or something would be better. I know that sounds crazy, but a interest free loan for "a few months" is basically that, a gift.

Also, I am an ass, but shouldnt these people have $$$ incase of emergencies like this? Ok so they need to refi cause the loan adjusted. They should have 6 months of cash sitting around to live off till they get the correct adjustment. If they dont, or they waited till it was all gone like an idiot, then it is alot more risky than they let on. Refi's shouldnt take "a few months", especially if things are really ok and there will be "plenty of money".

I guess all this rambling is to say that I have a feeling that someone isnt being honest with either themselves or their family. They prob want to do a cash out refi to a new teaser rate to keep the party going for another 2 year stretch. Sounds like disaster to me.

Submitted by davelj on April 15, 2008 - 1:57pm.

As others have suggested, don't lend the money unless you're willing to lose it all without complaining.

As Stan Grossman commented in Fargo: "We're not a bank, Jerry."

Submitted by eccen in esc on April 15, 2008 - 2:07pm.

eccen in esc

neither borrower nor a lender be

William Shakespeare

Submitted by CVFanGirl on April 15, 2008 - 2:19pm.

Ah the good old days of Debtor's Prison. I think people have always been bad at repaying. Dreams and money don't mix well.

Submitted by marion on April 15, 2008 - 2:33pm.

Ditto public defender. As long as you won't be angry when someone doesn't pay you back, loan away.

Submitted by sandiego on April 15, 2008 - 2:46pm.

I have a similar predicament.

This stripper that I am "seeing" needs a new set of cans. After 15 years of working the brass pole, her 34 C's have transformed into 34 longs. She wants me to loan her $10,000. She thinks that with a fresh set of bolt-on's, she will be able to pay me back in 6 months.

Should I pour another $10,000 into a 35 year old stripper or should I pick out a newer 1980's model?

Submitted by davelj on April 15, 2008 - 3:14pm.

sandiego, I found your post to be uplifting. *Ba dum chhhh*

Two things...

One, does she have to go to a Plastic Surgeon to the Stars? $10K seems pretty steep for a new set of cannons. Here in SD there are many a good surgeon who will do this for $6K or so.

Second, if she can pay you back in "6 months" - let's take her at her word - then she can put this procedure on a credit card and pay off the balance in, say, 7 months (adding in the impact of interest). Even at a high rate of interest, paying a loan off in 6 months doesn't result in a very high dollar amount of interest paid (because the amortization is so rapid).

Lemme guess... her credit's shot and she's maxed out her credit cards...

Submitted by desmond on April 15, 2008 - 3:16pm.

But saying "no" may forever ruin an otherwise good family relationship.

Saying "yes" will ruin the relationship.

Submitted by sheilawellington on April 15, 2008 - 3:38pm.

I always though that lending money, especially to family or close friends, is one of the stupidest things that you can do.

Later I learned that paying back a loan is considered even stupider!

If you don't mind little white lies, tell the potential borrowers that your money is tied up in IRAs and the like and that would take a huge penalty and tax hit if you were to cash out now.

Submitted by AK on April 15, 2008 - 3:41pm.

Yeah, it really, really stinks to deal with financially dysfunctional family members. Bu there are two possibilities to consider:

1. Someday you may need their help.

2. A timely loan/gift could keep them in their house, and off your living room sleeper sofa.

Submitted by mydogsarelazy on April 15, 2008 - 3:51pm.

Loaning money to friends is a good way to lose both.

JS

Submitted by stop_the_bubble_hype on April 15, 2008 - 4:19pm.

Tell them my story.

5 years ago I "loaned" a friend $750 which was supposed to be "short-term" until she cashed out some stocks. Well here we are, 5 years later, a few vacations later, another $150 loan and guess what...no mention of my original or second "LOAN". In fact, the friend seems to have forgotten the whole thing.

The good thing for me it was not very much and was not worth losing a friend. Also, now I can always use that money as the reason for not loaning more.

Tell your associate don't do it.

Submitted by jpinpb on April 15, 2008 - 4:50pm.

I agree w/PD. I loaned $$$$ to a friend seven, eight years ago and in my mind I told myself I'll never see it again. Only loan it if you're ok w/that. She was in a real bind and I had it to spare. Would it come in handy now? Sure. I never bring it up. Maybe once a year she'll say she hasn't forgotten and someday she'll pay me back, but I am so not holding my breath. I helped a friend out. I suppose if there was some way she could pay me back other than financial, she would. Or the pay it forward concept, maybe someone will help me when/if I need it. I feel good about helping her, but I only did it knowing it was a gift and I probably would never see a dime of it.

Now, when I was in a bind when I had my house in the '90's, I got a loan from my brother and paid him back w/interest. I would never borrow unless I could pay back.

Submitted by Aecetia on April 15, 2008 - 5:12pm.

Go ahead and loan the money if you do not want to hear from them again. My husband loaned his brother $1,000. over five years ago. That's the last he heard from him. No, he is not dead. We did not know you could get rid of relatives that easily or we would have done it a long time ago.

Submitted by La Jolla Renter on April 15, 2008 - 5:48pm.

BAD IDEA!!!! Don't do it!!!!

Even if you say your ok if you never see the money again, it will bug the shit out of you when they haven't paid it back and are taking vacations.

I suggest coming up with a great excuse why you can't lend the money.

Examples...

You just had to get a short term loan yourself because you over funded your 401k, kids college fund, health savings plan, etc.

Your company just sent out lay off notices.

You just met with your financial planner and they said you are under protected with no emergency fund. So can't lend anything out until it is build up.

I am sure some fellow pigs can come up with even better excuses other than the honest... NO!!!

Submitted by PadreBrian on April 15, 2008 - 6:09pm.

NEVER loan money to friends/relatives. They will hold a grudge against YOU for the rest of your life if you do and EVEN if A) They Repay you B) They Never repay you. Makes zero difference. It's best to NOT loan the money and keep the friendship.

What many experts recommend is to give them the money as a gift.

BTW, is this another can't meet mortgage payments/reduced hours at work story? Tell them it's tied up and you don't want a penalty.

Submitted by Blogstar on April 15, 2008 - 6:10pm.

I have lent money three times glad to do so even though I knew I probably wouldn't get it back. In each case after some time past I sent a note with the next birthday card telling the borrower I wanted them to consider it a birthday gift. I knew I wouldn't get it back in the first place but left room for a little hope of it by not just giving the money away and then let the people of the hook soon after so because I didn't want it hanging in the air.Those individauls have never asked to borrow again either.
Nothing wrong with saying no . I've done that too. Also have told people my money was too tied up or already booked to be spent. I have also lent money and gotten it back and I always knew I would in those cases.

Submitted by barnaby33 on April 15, 2008 - 6:14pm.

Can't say if its a good idea but if so check out Virgin money.

Josh

Submitted by JohnAlt91941 on April 15, 2008 - 7:15pm.

"5 years ago I "loaned" a friend $750 which was supposed to be "short-term" until she cashed out some stocks. Well here we are, 5 years later, a few vacations later, another $150 loan and guess what...no mention of my original or second "LOAN". In fact, the friend seems to have forgotten the whole thing.

The good thing for me it was not very much and was not worth losing a friend."

Wow. With friends like that, ..........

Whether or not the amount is trivial to you, either you have honorable friends or you don't.

How would you rate this one?

Submitted by bsrsharma on April 15, 2008 - 8:01pm.

I think a compromise may be good: if the relative is { Father, mother, son, daughter, brother, sister } small loans are OK, especially if they have a good reputation; else, Just Say No!

Submitted by zzz on April 15, 2008 - 8:20pm.

If family is important, then helping people in tough times is not such a terrible thing if the ability is there and the ability to write it off as money gone is also there. Ask your colleage to put himself in the relatives shoes - if they aren't just trying to take advantage of others, then its probably hard for them to even ask for the money- which means they really need it. However, the loan should not come with judgement -they'll just drive themselves crazy judging how other people's finances are handled. If they opt to loan the money, just be honest about the awkwardness of loaning money and discuss how best to handle it. Either agree to payment terms, or like others have said, give it as a gift.

Submitted by PadreBrian on April 15, 2008 - 9:01pm.

From Shakespeare's Hamlet, 1603:

LORD POLONIUS:
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

(Not to sure about the husbandry part. I need clift's notes for that.)

Submitted by Blogstar on April 15, 2008 - 9:15pm.

And borrowing dulls the edge of husbandry.

I think it refers to making household ends meet through ingenuity,thrift and elbow grease which are all discomforts one might rather shirk by finding and indulging in what appears to be an easier softer way, borrowing.

Submitted by marion on April 15, 2008 - 9:26pm.

It's not that difficult. If you love or care about the person, they need it for a legitimate reason, and you have it to give, then give it. It's only money. But, make sure you can afford to part with it knowing that you may not get it back.

Submitted by PadreBrian on April 15, 2008 - 10:10pm.

op, it sounds like it's a large chunk of money, enough to warrant that they take out a HELOC (loler-coaster) in a few months. lol, here's some news: In two months HELOC loans will be even harder to get....less and less banks making them as property values shrink (come back down to normal levels, pre-easy money...2002).

Submitted by PadreBrian on April 15, 2008 - 10:10pm.

Thank you, rustico. Is your name cliff, btw? hehehe

Submitted by donaldduckmoore on April 18, 2008 - 1:33pm.

Depends on how much. Excuses could be I just bought a car and I have none left, or money in the stock market and I lost a lot of money from it. I need help too.

Submitted by cooperthedog on April 18, 2008 - 3:01pm.

I would evaluate it on the following points, in order of importance:

0) Is the amount something you are comfortable losing?
1) Are their any personal issues (substance abuse, gambling, etc.)?
2) Are they throwing good money after bad?
3) Do you trust the person?
4) How close is the relationship?
5) Is this an anomaly or a consistent pattern of financial mismanagement?
6) What are the consequences of them not receiving the loan?
7) What is their specific plan for repayment, is it realistic, & what contigencies may hamper thier efforts?

If you do go forward, discuss the need for them to communicate openly if the loan can't be repaid on schedule, and that it is OK if, and only if, it's due to circumstances beyond their control (and completely unacceptable if they are putting discretionary spending before repayment).

Finally, if the sum is significant, ask for collateral. Have them sign over their vehicle(s) & draft a loan contract. If they take offense, remind them that it is only an issue if they don't pay you back. If they still refuse, don't lend the money.

In my opinion, friends/relatives who are *truly* in need deserve some help. If they respect you and have the means, your money will be repaid. If they lack the means, but are trying in earnest, consider the loan a gift until things turn around. If they have the means and don't repay you, then you've just discovered the depth of your relationship.

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