Have you loaned a friend money?

[plsprius]

I've sometimes wondered whether I should loan friends money when they are in need of short-term cash. (By friends I mean not family--those loans are better called 'gifts.') As a mostly-FIRED person, I have accumulated assets for my 50+ year (I hope) non-employed future, and therefore have some flexibility.

Over the past 10+ years I have lent significant money to friends twice (about $10K each time), and both times I was repaid. By significant money I mean that $10K is about 20%-25% of my annual spending. But, the last time I lent money it was a bit awkward. Let me tell you about it.

A few years ago a friend living several hundred miles away telephoned and told me he urgently needed "$10K for about two weeks." Something about a mortgage payment and credit card bills being due. That, plus a new family and newborn children. I trust this person implicitly, and was happy to quickly wire him the money. I knew that my friend was self-employed at the time, and because of our long-standing connection (from graduate school), I felt that he would make good on the loan. If he had to, he could easily enough get a job. Also, because of the urgency, there was not time for a written agreement.

After about three weeks had passed I began to inquire about the status of "my" funds. A few emails and phone calls later and I had no response. That alone was uncharacteristic of my friend. So, now, I was expecting some sort of problem--which I could have dealt with, I suppose.

At about 6 weeks an envelope arrived in the mail, with no return address and no other writing. The envelope held only a check for the full amount--which didn't bounce. If I recall correctly, I sent an email politely thanking my friend.

But--and here's the punch line--my friend and I have since had no contact. I haven't felt comfortable trying to re-establish contact, and I'm sure he feels bad about the sequence of events. Since my friend lives relatively far away, there hasn't been a pressing need to resolve this situation, as would be the case if we saw each other on a daily basis.

Now, several years later, I have decided that our friendship is valuable enough that I should extend my hand first--and that is what I'm going to do. Perhaps some insights from this forum may help me!

So, here's a question for the forum: have you lent money to a friend, and how did it turn out?

- plsprius

 

[CyclingInvestor]

Yes. Part of the definition of 'friend' for me is am I comfortable loaning them money, because if I am not then a problem of trust exists which would keep them at 'acquaintance'. I have loaned $10K (25 years ago when it meant something) to one friend, larger amounts since to others.

 

[CuppaJoe]

To answer your question, no, I’ve never been hit up for money outside of “family.” Family includes close friends, people I spend holidays with. Like you say, those are called gifts not loans.

Interesting story about wanting to resume the friendship. I’m inclined to think that if your friend is a guy, like most guys his wife does all the correspondence and doesn’t know you. Since their children are young, she may not being doing much corresponding either. Yet, the kind of jam you got them both out of deserves a lot more consideration. He’s also probably been overwhelmed with work, and family. All and all, I think it’s worth a try, and no harm in forgiving his social ineptness. How do you plan on approaching him?

 

[W2R]

I was brought up on "Neither a borrower, nor a lender be". In my opinion, lending or borrowing money can sour a friendship, anyway. So, on the rare occasion when friends have explicitly asked to borrow money, I have told them no but that I would give them the money instead. Nobody has taken me up on that, yet.

 

[donheff]

I have been hit by family and lost the "gift." I have two friends who requested more long term loans to invest in their business starts but I begged off. Your case sounds a little bizarre. The guy paid you in full pretty quickly. I am surprised he didn't stay keep you abreast of his situation or at least follow up with thanks and an explanation. Like you, I would try to reconnect.

 

[rescueme]

The guy paid you in full pretty quickly. I am surprised he didn't stay keep you abreast of his situation or at least follow up with thanks and an explanation. Like you, I would try to reconnect.

Probably borrowed the $$$ from somebody else to pay you off. It's been done before (guy by the name of Ponzi comes to mind )...

As for me - I won't lend money, nor would I ask a "friend" for any. To keep the friend, I would suggest they find a bank (and so would I, if the need be).

 

[Moemg]

My friends know how cheap err frugal I am so no they never ask to borrow money .

 

[Independent]

I've always believed that borrowing or lending is likely to sour the relationship. But I have done it with family - only in amounts that I was willing to convert to a gift.

 

[ziggy29]

I've always believed that borrowing or lending is likely to sour the relationship. But I have done it with family - only in amounts that I was willing to convert to a gift.

Same here. When my FIL got into legal troubles because of his criminal, succubus second wife (as I've chronicled elsewhere), we had to "loan" him $10,000 to go toward restitution for the guy who was defrauded by her in order to cut a plea deal to keep him out of jail. He's a proud man and would never accept a "gift," but truth be told, while we think he'd pay it back if he can, we have mentally accounted for it as a gift.

 

[RE2Boys]

I've lent money to a friend, but made it known that it had to be on a strictly business basis.......an official agreement spelling out terms of repayment, interest, signed in front of a notary etc. In short, a legal document such that I can take legal collection action if I so choose. Never had to, always got repaid per the terms of the agreement. Friends should have mutual respect for each other and the impact it would have on each if they did not live up to the agreement.

RE2Boys

 

[walkinwood]

Yes, and will continue to do so when asked. That's what friends are for!

 

[citrine]

I have....just extended the contract on the remaining $400 she owes me. If I decide to loan large amounts, I will get a written contract. If it is a minute amount....I don't even worry about it....chalk it up to karmic gift.
The only people I would loan $10K to is my family and even then it would be a gift.

 

[haha]

I have never been asked. I think it may be because people including my family are either very tight themselves, or they assume that I am poor. Many of them know that I got the old 1-2; divorce followed by this crushing bear market.

They might figure that they had better not mention money or I will hit them up.

I once borrowed $2500 from my FIL. A few months later I paid it back. He said "I never expected to see this- none of my children has ever paid back a loan." OK, I'm not one of your children, that is why I was allowed to marry your daughter.

Ha

 

[Shawn]

I've "loaned" a substantial amount of money (> $1000) to three people in my life. Whether the money was a gift or a loan was not well defined. I was happy to give the people the money, although my expectation was that these were people who would want to pay me back. I've had mixed results.

I gave about $1000 to a friend when I was in graduate school. I assumed it was for something important like food or rent. She paid me back about four months later, but that was after she bought a new set of dinning room furniture. I was a little disappointed that the purchase of unneeded furniture was more important to her than settling our informal debt.

I gave about $1000 to a friend to help with some veterinary bills. I expected that she would pay me back because she always advertised herself as an independent woman who could take care of herself. She did not pay me back. Oh well.

I gave about $5000 to an ex-girlfriend (we had already ended our relationship at the time). She needed car repairs following an accident and also needed to pay for a tutor for her son. She paid me back within three months. Bless her. One of the things that attracted me to her was her responsibility with money. That is, she was sensible and practical.

Oh. One more. When I was in graduate school I gave my mother $2000 for some medical bills. She sent the money back when it turned out she didn't need the procedure.

If you do contact your friend, I'd suggest not mentioning the loan or financial issues. Don't start with, "Hi, we haven't spoken since I loaned you that money." The way he responded seems a bit unusual, so there may be more to the story that he doesn't want to discuss. If he wants to bring it up fine, but don't mention it.

 

[FIREd]

I have never loaned money to anyone. I have never been asked for money by friends (do I look too poor?) and when I help family members I always consider it a gift. I have helped my sister a lot in the past and last month I gave a few grants to my mom to help her buy a new car. She could have never been able to afford it by herself, so I decided to chip in. I did it because I could, financially, and it made me happy to be able to help. I don't expect anything in return. Seeing her all giddy with her new "toy" is satisfying enough to me.

 

[freebird5825]

I have never loaned money to family. Several have asked. I politely said it was not possible right now and recommended a bank loan. That was not well received. Oh well. The persons asking were not good risks for repayment.

Friends - well I have to confess I made the mistake twice. TG each was for amounts under $1000.
One was a casual friend who was going to lose inherited property unless the tax bill was paid, NOW. I drafted and had him sign a formal loan agreement with a witness. It took over a year to be fully repaid, but that was more a case of his cash flow than ignoring me. I held the trump card. Repaid in full.
The other was a casual friend who was short cash for her divorce legal costs. I did not do the formal agreement. I loaned her $500. She stiffed me for $400 of it.
Guess what I never do anymore?

Re your friend...tough call there. You could break the ice, use the telephone and say pretty much what you've said here. It's been a long time and you greatly value the friendship. He may have had a bucketfull of trouble going on in his life.
Leave him an opening to reach across the table...but above all be honest.

 

[bbbamI]

Yes, I've loaned money to a friend/co-worker. She insisted on writing out a document showing the amount and dates of her receiving the money and when she made payments.

I was willing to just let it be a verbal contract, but the document protected her as well. It was under $1k; she needed the money to move to an apartment in a safer neighborhood. That was about 20 years ago and no one has asked me since.

 

[forcho130]

I want my story to be a lesson to all of you who are thinking of lending money. Don't do it! Not even one cent! I'll never lend anyone any money again for the rest of my life.
I have unfortunately been taken advantage of because of my good nature. My neighbor gained my trust by inviting me to his house over a period of months for barbecues and such. He introduced me to his family and they all seemed like decent folk.
One day he knocks on my door and says he has money problems. He needs $5,000 really quick and he'll repay me within a month. I agree, hesitantly, because for me, with my income of only $30,000, $5,000 is a lot of money!
A month passes and he hasn't paid me back. I ask him about it but he stalls and delays. He takes business trips out of town and is gone for periods of weeks at a time.
One day I come back to my place to see that his house is empty!
Turns out he had received around 1 million $ from various people and was arrested for extortion! He threw all the money away into a foreign bank account and is sitting in jail now.
Of course, he has no money that I can ever get back, so I'll never see that $5,000 I lent him.
I've talked with lawyers and they say there's no chance of me getting my money back.
Never ever ever lend anyone any money! That's my lesson I learned the hard way.

 

[Westernskies]

Remember the old saying:

Loan someone $20. If you never see either of them again, consider it the best investment you ever made.

 

[Maurice]

I lent one friend 25k for a couple of days. I had it in my checking account (don't ask) and he needed a check that day for a deposit on a real estate transaction. He has lots of assets and a high income so I didn't worry for one second, he was just not liquid and needed to sell some stocks to get me the cash. I got my money back in 2-3 days.


Then there's my old friend from high school - he came to me for $500 once to buy his wife a gift for their 10 year anniversary. I told him I wouldn't lend it to him but I'd give it to him - provided he never asked to borrow money ever again.


I did that because they guy was a financial train wreck and I knew some day he'd ask me for lots more, as a 'loan' of course. To me it was worth $500 to never have to face that situation.


Of course, it didn't stop him from asking me again a few years later. This was after he declared bankruptcy and then left his wife (who was the only one of them with stable income). He wanted money to set up house with his new girlfriend, who also had walked out on her husband and kids. I declined and reminded him of our previous arrangement, which he had forgotten.


Like they say, creditors have better memories than debtors.

 

[My Dream]

I lent a friend $12,000. once with no paper work. I had a feeling I'd never see it back since I knew he had financial problems. 7 years later, we dont' talk anymore and I know I won't see the money. Now I just say................sorry. That's the only amount I never got back, the others weren't a problem.

 

[WM]

I loaned a friend $900 a few years ago because she needed cash for the deposit on her new apartment and was having some kind of cash flow issue (I forget exactly what). Verbal agreement, I knew she'd have the money to pay me back in a few weeks, which is what she did. We're still good friends.

 

[free4now]

I've never loaned to a friend because I would only want to do so if I were going to be paid back, and there's no real way of knowing if they intend to do so. But I've only been asked once and it was clear that they were not financially responsible, so it was an easy call. I'm not sure what I'd do if a friend who appeared responsible asked.

One big factor would be whether the friend showed that they understood what a favor it was for me to lend the money, and intended to reciprocate.

Just from this thread it is clear that a significant portion of friend loans (at least a third) don't get paid back. Sadly, that's much worse than "real" loans, which have to be paid back in much higher numbers for the lenders to make money.

That's why I would want credit card type interest (~18%) on a friend loan. If they aren't willing to pay credit card interest then they either don't really need the money or are wanting a gift more than a loan.

 

[calmloki]

We've loaned to family, friends, acquaintances, and total strangers. I prefer acquaintances. Just did a further loan to some young neighbors who are doing smart things with their money - we admire their hard work and way of conducting their lives. They are competent. We've loaned to them at 2 points less than we loan to strangers and in the least expensive way possible (getting a title company sort report rather than title insurance on their encumbered property for instance). We choose to make it easier for them to succeed.

We've loaned to some other neighbors with no interest on a very short term basis when they had some emergencies that money would help - again, we knew how they conducted their lives and we were repaid promptly. Frankly, while the latter couple is very hard working, they aren't as financially savvy and are more prone to drama in their lives - prefer to make money on loans and have less drama.

Smaller loans made to workplace friends by my gal have been problematic - high default rate, expectation of further loans as they fall deeper into a pit of debt, way too much hassle and drama and bad feelings on small amounts. I'm funny - it bugs me as much to have someone fail to do what they say on a small amount as on a large.

Family loans have been repaid at no or savings account rates, but we've rarely been asked - kudos to family for that!

 

[Delawaredave5]

I don't think you "loan" friends or family money - you "give" it to them with a possibility of seeing it given back to you.

I've [-]loaned[/-] given family money several thousand dollars - "I'll get the money back as soon as ____". Never saw any of it back.

That's OK. I viewed it as as a non-deductible charity donation. I try to help people.