Lending to Friends

[Pete]

Hi forum,

 

If a friend asked for a short term loan what would you do if you had the cash ?

If they asked for a few grand with the promise of paying you back in a couple of weeks would you help ?

If they seemed fairly affluent, lived in a 6 bedroom mansion and drove a Merc would you worry about their credit risk ?

 

For those of you who would lend the cash, here is the tough question.

 

If after 8 months you still had not got your money back and you were getting excuse after excuse i.e. tomorrow, next week etc. at what stage do you take legal action and possibly end that relationship ? Would you wait indefinitely on a promise or start getting tough and take the debt to Court ?

 

Thoughts please as this is a real situation.

[Stu]

I would have to know the person very well to lay out that kind of lolly. That being the case, they would be in my inner circle and I would be very surprised if they could not pay it back. If they were unable to repay for any reason I would believe it was genuine and would expect token payments as a gesture, minimum.

Not sure on your legal rights unless paperwork was signed for the loan?

[HelpingHands]

I'd now be thinking that they don't have access to any funds. If they had access to credit then they probably wouldn't have ask you in the first place.

I'd ask if they had anything of value they could give you which you could sell on their behalf .

[KDave]

Is it worth losing a friend if/when they don't pay you back? Are they really your friends if they are no longer a friend because you refuse to lend them money? These are the questions I would ask. 

 

Personally I would never lend to a friend ever. Family maybe but only in the most extreme of circumstances such as life threatening situations where money was needed.

 

I have seen people lend to friends then the friend disappeared without saying anything. I have seen one of my own friends lend a grand to someone he thought was his friend so they could repair the fencing in the garden so their young kids could play out. 3 years later no sign of the money and the friendship is getting rather strained to say the least. 

 

If they are living in a 6 bedroom house and need to borrow money from friends they are in trouble and probably have other people to pay back before their friends. 

 

Each their own though.

[DRooster]

I would only GIVE to friends, never lend.

I don't even lend out books or tools : come here and read the books, use the tools.

Best if they give me the job, I use the tools, job done.

Barter/swap jobs, everyone benefits.

[Pipers]

Do you have a contract?

If not the only way to get the money is to record Him or her admitting they owe the money and they will pay you back eg next Tuesday.

I had the same problem with a smaller amount when I was 18 with a mate the only way I got it back was to humiliate him in front of everyone in the pub he was quite wealthy so he paid up. Since then I always get a contract this gets funny looks.

[HelpingHands]

If you haven't already asked this person to be honest and tell you what the situation is then you should.

[Pipers]

After 8 months yeah I would take him to court, if he cannot afford to pay he would of given you instalments as a friend he would of been honest and come to you with a repayment plan.

[BaldyBob]

I don't lend money to family or friends. If you do , the bond/friendship is over. I don't even like to discuss money.

 

That being said, I don't think my immediate family would ask, even if in dire straits. However, if the situation was truly dire I would probably give it to them if I could anyway.

 

As for the 6 bed house with a merc question....these are the people that would worry me most as it is probably all built on credit...or why would they need a loan from a 'friend'?

[HighlandTiger]

If they seemed fairly affluent, lived in a 6 bedroom mansion and drove a Merc would you worry about their credit risk ?

 

i know it's not what you are asking, but if someone has a massive house and a posh car, and they were coming to me for a loan, the alarm bells would be ringing big time. The'd obviously maxed out their overdraft and credit cards

 

The facts are simple, whilst you may consider this person to be a friend, I doubt they feel the same. If they did, they would have paid you back immediately.

 

Now unless you had a witnessed contract of the loan, you may have trouble going down the legal route. 

 

Unfortunately you may have to chalk this one up to experience, albeit an expensive one.

 

For the record, I have lent money to family, and my family have lent money to me. Whilst I have always paid back my loans, I have not got all the money I have lent out back. In fact, when my brother and his family were struggling, I gave them a roof over their heads and cash to tied them over. I've never got that money back, but then I'll never ask for it back either, even though it is in the several thousands. To me family comes first, probably why until recently I've always been skint.  

[Pete]

Thanks for all your personal feedback and sharing some of your own experiences.

I have a record of emails with the original request for a loan etc. and a full history of correspondence.

I checked the web and see that there is an on-line application for a Money Claim Court process that seems pretty straightforward.

Another problem I have is the person who borrowed the money has their elderly parents living next door and they would be devastated to learn of this situation. As a very caring person I would not wish to break the news that I am about to sue their daughter. Having said that I may have little choice as I am not a charity and certainly not prepared to support someone else's flamboyant lifestyle.

[daz]

I try not to borrow/lend to or off anybody on the rare occasions that I have owed people money (lost bets etc) I make sure I pay people on time even if it leaves me short so I expect people to do the same to me , if the person in question can't pay I at the very least exect them to come to me and let me know and acknowledge the debt they owe me I don't think I should have to ask you for my money back. What really gets my goat is when people start trying to avoid you to get out of paying.

I'll be honest in some of these cases I've sat outside peoples houses/ places of work to have a word and collect some pretty small amounts . To me Its not the amount its the principle of the thing.

I would definately bring it up with them and try to get them to agree to repayment schedule in writing failing that sell the debt on to someone who will collect

[HighlandTiger]

[SoulUK]

I wouldn't lend to friends. Brings far too much hassle and as the lender theres no real upside.

[Fluttershy]

if you lend a friend some money, and you never see them again, consider it money well spent!

[BaldyBob]

Good luck Pete

 

Having used small claims court, it is fairly straight forward.

Moneysavingexpert.com have a good step by step article on it.

[Paul]

Simple fact - don't do it.  Just because he or she cant keep their finances on track why are YOU suddenly obligated to solve THEIR mistakes ??

 

A proper, good and decent friend would not even ask in the first instance and take responsibilities for their own hole they have got themselves in

 

Even with the trappings of big house, posh car etc.  clearly shows they have spent money they haven't got on stuff they don't really need or beyond them affording.  BIG RED FLAG

 

 

“Neither a borrower nor a lender be.” These famous words came from Polonius, Shakespeare’s chief counselor to King Claudius in Hamlet. As Polonius gives some fatherly advice to his son Laertes, Shakespeare gives some timeless advice to us: Do not lend money to friends.

 

Why shouldn’t we lend money to friends and family? Polonius answers that in his next line: “For loan oft loses both itself and friend.” Polonius knew that a loan to a friend or family member often results in the loss of both the money and the relationship.

 

In fact, loans between family members or friends can result in an entirely unexpected set of problems. Consider the following 10 reasons not to lend money to friends and family, and some tips to help you with damage control if you do agree to loan money.

 

I learned a lot from both experiences. Most importantly, I learned that I’ll never loan money to friend or family member again, for the reasons outlined here.

 

If you’ve already decided to loan money to someone close to you, here are some tips to help you mitigate some potential areas for communication breakdowns:

 

1. Open-ended Loans
Loans to family and friends tend to be open-ended. The parties don’t reach an agreement for a timeline for repayments, and don’t include interest on the loan. Lenders don’t know when their money will be returned, and borrowers don’t know when to repay the loans.

This leaves both parties in limbo, and doesn’t set any expectations. The uncertainty can lead to stress as the borrower may worry that the lender expects payment and the lender worries about when he or she will be repaid. When I loaned money to a family member, it delayed my decision to buy a house.

 

 

2. Loans Are Not a Priority
With an open-ended loan, the borrower may not realize that there is a sense of urgency to repay the loan. Without a deadline, repaying the loan becomes the borrower’s last priority. The borrower won’t face any repercussions for not repaying the loan, like late payments, higher interest fees, or a negative impact on a credit score. Without the threat of penalties, the borrower has no motivation to take the loan seriously or to put any urgency around repaying it.

 

 

3. It’s Difficult to Ask for the Money Back
It can be difficult to request repayment of a loan from a friend or family member. More than likely, the lender cares about the borrower, and doesn’t want the borrower to feel awkward. The lender may continue to worry about loan repayment, and thus shut down some or all communications with the borrower in order to avoid talking about the loan. The borrower becomes confused and hurt feelings can result.

 

If you have already lent money to a friend or family member and struggle with asking for the money, take the time to talk to the borrower to resolve the situation. When I had a difficult time talking to my family member about paying back a loan, I offered gentle reminders about the loan instead of asking direct questions. This made the discussions easier and less threatening.

 

4. It Can Make Family Gatherings Awkward
I have loaned money to a family member, and I have also borrowed money from a family member. In both scenarios, family get-togethers were very awkward. I felt uncomfortable being around the person who loaned me money. It was also uncomfortable to be around other family members who knew about the loans.

No one wants to talk about the loan or about money or even about anything that costs money, because then people might wonder why someone hasn’t repaid the loan.

 

 

5. The Borrower Becomes a Servant to the Lender
The book of Proverbs in the Bible claims that the borrower becomes a servant to the lender (Proverbs 22:7.) This is exactly how I felt when I borrowed money. I felt that I had to please my lender and do everything that he suggested. I felt like I could not oppose this person in any way.

 

 

6. The Borrower May Ask for More
Once you have lent money to a friend or family member, this person may return when he or she needs more money. In addition, other friends and family members may also ask you for a loan.

 

Don’t become the go-to lender in your circle of family and friends. You should never be in a state of constant lending.

 

7. You Enable Instead of Help Your Friend or Family Member
When you lend money to friends or family members, you give them an easy way out of their financial problems, instead of helping them work through their issues.

For example, your cousin may ask for some money to pay off her credit card bill, but she needs help learning how to make a budget. In that situation, refuse the loan, but offer to help your cousin create a budget or to look for alternative forms of income.

 

 

8. These Types of Loans Don’t Earn Interest
Loaning money to friends and family costs you money. Most likely, you won’t charge interest if you give a loan to a loved one. I neither paid interest nor charged interest on my family loans. If you could invest the money that you lent to friends and family members, even through peer-to-peer lending networks like Lending Club and credit union, you could have received interest.

 

 

9. You Might Need the Money
You definitely want your money returned, but you may also need your money. What if you lose your job and you have no income? What if you spend your entire emergency fund while searching for a new job? What if you need to put food on the table for your kids and repayment of the loan marks the difference between you keeping your house or going into foreclosure? Not receiving repayment of the loan in a timely manner might spell disaster for you and your family.

 

 

10. You Could Lose Your Money and Relationship
As Shakespeare wrote, “For loan oft loses both itself and friend.” If you lend money to a friend or family member, beware that you may not get your money back and your relationship may never go back to normal. This will cause tension between you and the borrower, and may also cause guilt, remorse, and anger.

[Cointreau]

Do let us know how you get on.

[Murph]

Did you ever get some of this money back?

I've lent a few friends smaller amounts up to around £1000 before and have just written it off as to me it's only money and money, to me isn't as important as friendship.  Some of this has been for people in dire straights and for things like Christmas.

 

[ChrisSilver]

I have lent and borrowed from friends, just have to know which friends are trustworthy with money. There is only a select few out of my friends who I would lend large amounts to. But the ones who I would I don't have any worry about them paying it back. It's best to clear up the details before. I.e. How long do they need the money for and what there repayment plan is.

Every time I have borrowed money the person I have borrowed from has known the exact reason for it, and details about what income will pay this off. Can even secure the loan with the promise that if you can't pay it back you can sell a few coins 

I personally think it's fine to lend to friends, but you have to be careful and know who will 100% pay you back. I have some friends who say they would never lend to friends as they don't want to ruin their friendship, that just shows they don't trust anyone financially. And some friends who wouldn't even ask to borrow even if they needed the money.

I would suggest before taking your friend to court to first sit down and discus with him how he can repay back the loan. There much be an amount per month he can afford to pay you back. If he can't agree to any amount then you should take legal action, no reason to loose friendship over it just don't lend to him ever again.

[sovereignsteve]

3 hours ago, ChrisSilver said:

If he can't agree to any amount then you should take legal action, no reason to loose friendship over it just don't lend to him ever again.

Are you suggesting you stay friends with someone who won't pay you back and you have to take to court?

Not my type of friend, I wouldn't have anything to do with them after that.

I would only lend to someone I trusted. If I had to take legal action to get them to repay, I would consider that a betrayal of trust. I don't need friends that badly.

Just the way I look at these things, we're all different.

[motorbikez]

What's that old saying, neither a borrower nor a lender be, some wise words spoken there for the average non business man or woman in the street.

When I was 17 I asked my mother to act as guarantor for a car loan, she refused & said since you saved up & bought your motorbike you can do the same for a car. I then got the lecture you only borrow money to buy a house once you have saved your deposit.

I was none to pleased at the time but that early lesson has stood me in good stead, I have lent the odd £50-£100 to friends in my youth & always got it back, but any substantial amounts I would only lend to my immediate family as I would have a reasonable idea of the circumstances of why they were after a loan.

 

[ChrisSilver]

1 hour ago, sovereignsteve said:

Are you suggesting you stay friends with someone who won't pay you back and you have to take to court?

I would say that most people know of at least one person in their social group that they would not trust paying back a loan, someone therefore that they would never lend to. Yet they call this person a friend.

If you made a mistake, misjudged a friend's financial character and lent to them and it turned out they couldn't pay you back;

Then what is the difference between remaining friends with this person and being friends with all of the people who you know would probably never pay you back? You could argue that one is a theoretical situation that you would never let arise and the other is proven fact, however, it is only proven fact because you lent to someone which you should not have done. It's at least partially your fault for misjudging that it would be OK to lend to this friend.

If out of principle you don't want to talk to this person again, then it is my opinion that you should be wise to who you socialise with in general and only socialise with those who you believe you can trust.

You may completely disagree.

[sovereignsteve]

1 hour ago, ChrisSilver said:

I would say that most people know of at least one person in their social group that they would not trust paying back a loan, someone therefore that they would never lend to. Yet they call this person a friend.

If you made a mistake, misjudged a friend's financial character and lent to them and it turned out they couldn't pay you back;

Then what is the difference between remaining friends with this person and being friends with all of the people who you know would probably never pay you back? You could argue that one is a theoretical situation that you would never let arise and the other is proven fact, however, it is only proven fact because you lent to someone which you should not have done. It's at least partially your fault for misjudging that it would be OK to lend to this friend.

If out of principle you don't want to talk to this person again, then it is my opinion that you should be wise to who you socialise with in general and only socialise with those who you believe you can trust.

You may completely disagree.

I guess it's all down to one's definition of "friends". Who you call friend and who is an merely an acquaintance?

At my time of life I'm past having the large social circle that I had in my younger days, consisting of a mixture of friends and acquaintances. People you hang out with and meet in the pub etc etc.

All my friends are long-standing, people I trust. I would have no problem lending money to any these friends if they ever hit on hard times on the understanding that they will endeavour to pay me back when they can. If that time never came, then fine, call it a gift and write it off.

I would never consider lending money to an acquaintance unless unless strict conditions including a contract of some kind.

[Pete]

As some of you asked - I am still waiting for repayment and I will be taking my so called friend to court if I don't get my money returned in the next couple of weeks.
My friend has supposedly been approved for a secured loan on property so we will see !
So much for borrowing a few grand for a fortnight as it has almost been a full year.