Lending money

[JohnDoe]

I will be lending money to a friend for the 3rd time in the last 10 years.

The past 2 times he has paid me back on time or better every month - 6k over 3 years and 9k over 5 years.

The first 2 times we had a notarized loan document and the loan was secured by his vehicle which he doesn't have any more although he is in much better financial shape now(and so am I).

This time he is asking for 5k over 2 years. I am not really worried about him not paying back as this will be an unsecured loan. I know he would do everything possible to repay me - should something happen.

What is the value of getting another notarized loan document. This is awkward to ask, but my only concern would be his death. As a 'lender' I should know the question to this.

Thanks.
JD

 

[dmdunca44]

Well, if he did not pay you back, the notarized document would prove that the money was a loan, not a gift. So you could deduct it as a bad debt.

 

[Buckeye]

What if he dies before he pays it back?

 

[prototype]

I never loaned money to anyone (except lunch money and things like that when people forgot their walletss...I had to the same a couple times. But we are talking 10 maybe 20 bucks.) Everyone I know who has loaned significant anounts of money to a friend (1k, 5k,...) has never seen it again, Paper work or not, Just my philosophy and observations.

 

[pb4uski]

While a notarized document would be better than an unnotarized document, both would be legal and enforceable. I don't think it makes a huge difference in getting your money back, the notary is just affirming that he signed it and makes it easier to prove that he signed it should he later deny it or if he were to die and his heirs challenged the authenticity of the loan document..

I also loaned money ($3k) to a friend about 10 years ago to help him buy out his cheating wife in their divorce and he paid me back every penny and we had a "note" evidencing the loan. Have also loaned money to DD and got paid back, but as others have stated I've heard horror stories about loans to friends and relatives.

 

[ratto]

Has you friend also tried some P2P lending services, like lending club? Admittedly, he will pay some interest based on his credit score/history, but if you choose to fund the majority/full share of his loan, then you can always to return the interest gain (minus tax and service charge) back to him if you want. If I were your friend and want to borrow some money, I definitely wouldn't want to put you into a very awkward position.

 

[donheff]

I'm with pb4uski, notarizing probably won't do much more than an un-nortorized document would do. As to the pros and cons of loaning, it sounds like you answered that question with respect to this friend a long time ago. He has shown himself trustworthy, you can afford it, and he's a good friend -- what's to lose?

 

[JOHNNIE36]

Within our family we have done loans over the years but always in writing. The reasoning being that should someone die while the loan was still outstanding, that document would prove that the loan existed. Not a document of enforcement but just proof that it was a loan.

 

[JohnDoe]

Thanks for all of the replies!

I will just go with a loan note signed by both of us and probably a witness.

 

[LeavingOhio]

John, I would say you are fortunate to have gotten that loaned money back. Many people in your situation (the lender) don't get their money back. A listen to Dave Ramsey's radio show would show that to be true. Unfortunately money is a way to ruin a friendship. I personally could not and would never loan money to anyone. If they are desperate and I am able, I might GIVE them money, telling them it's a gift, but I would not loan it. Since you have a track record with this guy, you might be ok, but it's still risky.

I know that some people will "give" money to someone with the phrase, "just pay me back if you can". Well, then in my mind that's not a gift...that's still a loan. To be a gift, you have to clearly state, "this is a gift and I do not expect nor want you to pay me back."

Anyway, I hope you get your money back. He will assuredly ask for another loan down the line as you will have done it three times now, and each time the risk of him dying gets more real because he's older each time. If you do decide to loan this money, if I were you, I'd make it clear to him that you can't do it anymore.

 

[Mulligan]

Past performance is usually an indicator of future performance. I will only lend money to a few friends. They have always paid it back. Though there are family members that I would not give a loan, too. The first two times went well and you had it notarized, why not do it again if it makes you feel better? You didn't mention the age of the individual, but there might need to be a time soon to ween the cub off the teet since this will be the third time in 10 years.

 

[panhead]

Documents are nice to have if there is an ambiguity in the terms of the loan, you can always point to the paper. The death thing is also a considertion. I have a friend that runs a business that has major fluctuations in cash flow. I often lend him money which he pays me back at a handsome interest rate. His credit sucks so it works for both of us, and it's worked well for years. The scary part is he is in a somewhat dangerous line of work, where getting hurt/killed is a real possibility. He's a friend, I understand the risk, it makes me money and helps with his life/business, and he has proven to be reliable (to me at least). Oh yeah, and we never had a signed document of any sort.
YMMV....
Pan

 

[W2R]

From Shakespeare, "Neither a borrower nor a lender be; For loan oft loses both itself and friend,"

Each to his own, but my family was fond of the above quote from Hamlet and I was brought up that way.

I simply cannot imagine lending a large quantity of money to a friend like that. Either I would give him the money, or I'd blow off the request entirely. I am not a branch of HFC.

 

[Meadbh]

Documents are nice to have if there is an ambiguity in the terms of the loan, you can always point to the paper. The death thing is also a considertion. I have a friend that runs a business that has major fluctuations in cash flow. I often lend him money which he pays me back at a handsome interest rate. His credit sucks so it works for both of us, and it's worked well for years. The scary part is he is in a somewhat dangerous line of work, where getting hurt/killed is a real possibility. He's a friend, I understand the risk, it makes me money and helps with his life/business, and he has proven to be reliable (to me at least). Oh yeah, and we never had a signed document of any sort.
YMMV....
Pan

Is your friend's line of work such that the people he owes money to might come after you?

 

[Bestwifeever]

Okay, slap me, but I'm dying to know what your friend is using these loans for.

I like that even with the unnotarized document you have formalized this as a loan to be paid back and not a gift. I won't be looking for you on Judge Judy trying to get it paid back, a recurring theme there (it was a gift! no, it was a loan!).

 

[Texas Proud]

+ whatever number on just a signed note... does not even have to be witnessed....

And to me, there are a few friends who if they did not pay it back I would not care.... but all my best friends are very responsible and would never think about not paying a loan back....

 

[Nodak]

+ whatever number on just a signed note... does not even have to be witnessed....

And to me, there are a few friends who if they did not pay it back I would not care.... but all my best friends are very responsible and would never think about not paying a loan back....

+1

 

[JohnDoe]

Okay, slap me, but I'm dying to know what your friend is using these loans for.

I like that even with the unnotarized document you have formalized this as a loan to be paid back and not a gift. I won't be looking for you on Judge Judy trying to get it paid back, a recurring theme there (it was a gift! no, it was a loan!).

Some of the funds are to pay his daughter's car insurance - she just started driving. Some to help complete a home improvement project. I think the rest is to start an emergency fund and piece of mind.

 

[frank]

I don't know where you are, but where I live, you can get a paper notarized at just about any bank for a couple bucks, so why not? it is just additional protection in case of some unforseen incident.

 

[mystang52]

Okay, slap me, but I'm dying to know what your friend is using these loans for.

I like that even with the unnotarized document you have formalized this as a loan to be paid back and not a gift. I won't be looking for you on Judge Judy trying to get it paid back, a recurring theme there (it was a gift! no, it was a loan!).

And as Judge Judy points out -- when one lends money to a friend, and then asks for the loan repayment, the lender is made to feel like the bad guy.

 

[Bestwifeever]

Some of the funds are to pay his daughter's car insurance - she just started driving. Some to help complete a home improvement project. I think the rest is to start an emergency fund and piece of mind.

Thanks, JD--apologies for my [-]nosiness[/-] inquisitiveness.

You are a good friend to him, and I would lend money for these things too to someone with a good track record of repayment of your friend.

 

[Wasting]

I never loan money to friends or family. If I give them any, its a gift. A legal document between you and your friend is only useful if you intend to enforce it. At that point you no longer have a friend.

 

[Buckeye]

Formal paper needed in case of death of the borrower to make a claim against the estate which can pay it back.

 

[Sue J]

Some of the funds are to pay his daughter's car insurance - she just started driving. Some to help complete a home improvement project. I think the rest is to start an emergency fund and piece of mind.

You said he's in much better financial shape now, borrowing to pay his daughter's car insurance seems odd. This is a recurring expense that he needs to cover.

It feels backwards to start an emergency fund and look for peace of mind with borrowed money. How is it his emergency fund if it's debt?

I can see why you'd be willing to do this since you have 2 previous experiences where it has worked out well. So far it's been a positive experience..... until it's not.

A notarized document seems like a good idea. Or at least an actual loan document, just in case he dies. Does he have equity in his home or other assets? 5K isn't that large of an amount.

When I needed to notarize a document our city hall had one available for no charge. I don't know if that's standard in other cities.

 

[panhead]

Is your friend's line of work such that the people he owes money to might come after you?

HehHeh!
No, not at all. He run's a legitmate business. I have several self employed friends and many of them run into instances where they owe alot of money, but are still waiting to get paid. One of my friends (not the one I loan money to) runs his own body shop. He has a trucking company as a major account and works on most of their vehicles. He floats the expenses to fix the trucks, and they may take more than 30 days to pay him and his bills come due before then. He simply needs a bridge loan.

My friend I do loan money to has circumstances similar to this. He runs a trucking company.

No worries, it's all legit, I wouldn't do ANYTHING to endanger my ER, lol!