Lending money
- Thread starter JohnDoe
- Start date
Danmar
Thinks s/he gets paid by the post
I could have missed this, but do you charge interest? Probably should. Otherwise you encourage his dependancy.
I don't want to drag this too off topic about me, so hopefully this helps the OP, but yes, I do charge interest (if that was targeted at me). It's a VERY attractive rate as well, and my friend suggests the rate.
As for the above comment, yes, he absolutely has trouble building a cash reserve. Like most people, he has a lot of trouble saving, thus the need for the revolving credit line.
We've had these discussions, but it's sort of like trying to explain RE to someone who doesn't see how it's possible. The "business" consists pretty much of him and a couple of container trucks. He had another guy working for him, but his major contract got cut back so he had to let him go and sell a truck. He makes plenty to support himself, he really has no debt (other than to me obviously), not even a mortgage payment and he owns his trucks outright. He likes his toys (cool cars, trucks, etc) and when he runs into real trouble, he liquidates those.
Cash flow management? Not this guy, he will live hand to mouth till the end. Really good guy, but that's the way it is for a lot of people.
Finance Dave
Thinks s/he gets paid by the post
- Joined
- Mar 29, 2007
- Messages
- 1,862
I follow the Dave Ramsey approach to this question. IMO a loan changes the nature of the relationship. If the person is THAT GOOD of a friend, then GIVE him/her the money. If they honor you as a friend, they might pay it back. If not, at least you had no expectation...so there will be no change in the relationship.
Please allow me to tell a story. I'm a sports car fanatic...I have two myself and belong to clubs/web forums. About 5 years ago I was at an event and met many people who had bought the same 2007 Shelby GT500 that I did. One of the people was named Glen (I've changed the name). We hit it off and then talked 3-4 times per year. In 2009 I returned to the same show and we spent some time together.
Then in late 2009, he sent me an email and asked if he could borrow some money. He said he had lost his job, and was going to lose his car if he didn't make his payments soon. I politely told him that I'm sorry, but I don't lend money to others, it's a family policy we have. I also did not want to "give" him the money...as this was an "extra" car that he used on weekends and for fun...not his daily car. So I suggested he sell the car and pay off the loan and be done with it. He was offended by this and stopped talking to me.
In 2010, I went to the show again...and found out that he had died just a month after asking me to borrow the money.
Had I loaned him the money, just think how awkward it would have been for me to even ask to have it paid back...not to mention that his estate may not have even had enough money to pay me regardless.
Please allow me to tell a story. I'm a sports car fanatic...I have two myself and belong to clubs/web forums. About 5 years ago I was at an event and met many people who had bought the same 2007 Shelby GT500 that I did. One of the people was named Glen (I've changed the name). We hit it off and then talked 3-4 times per year. In 2009 I returned to the same show and we spent some time together.
Then in late 2009, he sent me an email and asked if he could borrow some money. He said he had lost his job, and was going to lose his car if he didn't make his payments soon. I politely told him that I'm sorry, but I don't lend money to others, it's a family policy we have. I also did not want to "give" him the money...as this was an "extra" car that he used on weekends and for fun...not his daily car. So I suggested he sell the car and pay off the loan and be done with it. He was offended by this and stopped talking to me.
In 2010, I went to the show again...and found out that he had died just a month after asking me to borrow the money.
Had I loaned him the money, just think how awkward it would have been for me to even ask to have it paid back...not to mention that his estate may not have even had enough money to pay me regardless.
freebird5825
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
From the outside of the aquarium...
I see a 1-sided loaning relationship, i.e. no mention of him helping you in tough times. Correct me if I assumed incorrectly.
A few things to consider...
The daughter can finance her own insurance, i.e. put some skin in the game.
The HI project may not be critical to complete.
The emergency fund could be accomplished by your friend opening a line of credit with a bank or credit union. Or saving.
IMHO, if this were an emergency situation, I would be the first to GIVE money to friends whose home was damaged, or needed food and/or shelter. Critical situations need fast solutions.
My suggestion is to close the Bank of JohnDoe, gently but permanently.
I can agree with you in theory, but as a practical matter, lending money to a friend can be good for both the lender and the borrower. I lent a friend (I have know this person for 48 years) tens of thousands of dollars to finance her portion of the purchase of a waterfront vacation property on Whidbey Island in the Seattle area.
She and other extended family members own two more adjoining lots. The third property was purchased 7 years prior directly from a neighbor (cheap, relatively speaking). She and 2 other family members are on the title to this property. One of them had done a balloon refinance of his home to raise the original cash to purchase the property and the others paid him monthly. Now it was time for him to refinance so everyone needed to finance their one third.
I needed somewhere to put money and get a decent interest rate and she was looking for a chunk of cash so we drew up formal paperwork for a loan. The interest rate is 5% and the arrangement can be terminated by either person at any time. Interestingly, it did not change our relationship in the slightest. It's like the deal was done with "business her" and "business me" and not the two of us as friends.
At the time we made our arrangement, she did not have a HELOC on her home which had about $200k in equity. She said she didn't need one so I told her that's the time to get one! She did get one and she could pull from there to pay me off if I needed my cash in a hurry.
She has her payments on autopay out of her checking account directly into mine. No muss, no fuss for the last 3 years! I report it on my return, she deducts it on her return. It's a 15-year amortization with a 5-year term. I hope she renews 'cause I don't see rates going up anytime soon.
Several years ago, a close relative had loaned a cousin a lot of money to buy a lot and build a house to sell. Promised a 12% return. He built the house and he ended up stalling for months saying it wouldn't sell. This close relative finally hired a lawyer since it was out of town. Turned out the cousin moved into the new house and was renting the old one and collecting the money for himself. He even took out a large loan on the new house! They forced him to sell the rented house and make only min payments (less than 1/2 of what he should have been paying) since the cousin said he could not afford the payments and would file for bankruptcy and this close relative would get nothing. They put a lien on the house since they could not force him to sell and move out of his now primary residence (law in that state).
Just a couple of years ago, the cousin asked this close relative for more money! He said he could not make the mortgage payments! What nerve! He ended up losing the house. The secondary lien was worthless since he owned more on the house than it was worth. I later found out that he was able to buy another smaller house in just a year or so!
After my close relative recently passed away he stopped making the min payments. The lawyer said it would be like getting blood from a stone and not worth the $$ to go after him. We found other creditors already garnishing his wages.
Another relative has a similar story (2 times!), luckily less money involved. It was an emergency, and needed the $$ fast. Probably never see a penny back.
Another family member wanted to borrow over $140k from us to build a house and sell...makes lots of $$ he said. This was in 2009 when everything had crashed! He had taken $130k from another relative a couple of years before this doing the same thing, buy a lot, build a house, make lots of $$. All was lost. I could not even find a record of him buying land to build this house, might have been a scam. Well, he ended up losing his house about a year after that. I found that had pulled out over $550k from a house that just sold at auction for $300k. I think he wanted the $$ to fend off creditors a little longer until the economy picked up. Luckily I said no. He tended to live above his means which was a red flag too.
I think it's best to tell people your not a bank...especially if your are ER.
mickeyd
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Back in 1963 I loaned a friend $10 as he was tapped out and I had $25 in my checking account at the time. I recall trying to track down the friend for over a year before cornering him and demanding repayment. I got the $10 back and I have never lent money to a friend since. I have, however, given gifts to friends on occasion and not expected any re-gifting.
