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JohnDoe 07-11-2007 07:57 AM

Loaning money
 
Has anyone had success loaning money to non family members?

I am considering it. It would include collateral in the form of an IRA account, a notarized document, and a high interest rate. If it goes to term I should make a few thousand off the transaction.

Martha 07-11-2007 08:10 AM

Pledging an IRA as collateral for a loan is a prohibited transaction and could cause the IRA to be immediately taxable.

Interest rates are governed by state law and you very well could be violating state usury law if you have a high interest rate. For example, in Minnesota a loan from an individual to another individual for personal, family or household purposes cannot bear interest exceeding 8%. Wisconsin I believe the limit is 12%.

W2R 07-11-2007 08:11 AM

"Neither a borrower nor a lender be" has guided my decisions in these matters. I have never lent money to anybody, and I have never regretted not lending money. Works for me.

YMMV ("Your Mileage May Vary")

CyclingInvestor 07-11-2007 08:22 AM

I have loaned money to several friends, up to $10k, simple written agreement,
never any problems.

JohnDoe 07-11-2007 08:26 AM

Quote:

Originally Posted by Martha (Post 534749)
Pledging an IRA as collateral for a loan is a prohibited transaction and could cause the IRA to be immediately taxable.

Well, it's more of a "If I can't repay the loan, as a last resort, I would withdrawl the money from my IRA to repay you"

I guess we should be careful on the wording of such.

I see that in my state...Legal rate of interest is 6 percent. General usury limit is 6 percent for loans less than $50,000. Criminal usury limit is 25 percent. Judgment rate is 6 percent.

kcowan 07-11-2007 08:36 AM

I am not a big lender. A friend is a serial entrepreneur and has asked for $25000. I said I did not mix business with pleasure and I count his friendship more than any money I might make on his scheme.

OTOH a neighbour was in tough times and I gave him $200 for an emergency. No paper, just a handshake. Two years later he returned it. But he is now a friend for life. Money well spent (lent).

Martha 07-11-2007 08:40 AM

Quote:

Originally Posted by JohnDoe (Post 534757)
Well, it's more of a "If I can't repay the loan, as a last resort, I would withdrawl the money from my IRA to repay you"

I guess we should be careful on the wording of such.

I see that in my state...Legal rate of interest is 6 percent. General usury limit is 6 percent for loans less than $50,000. Criminal usury limit is 25 percent. Judgment rate is 6 percent.

There may be a slightly higher rate than the general usury limit of 6 percent for loans in writing. That is the way most states work.

TromboneAl 07-11-2007 08:47 AM

I'm sure you've all heard of this stuff:

The eBay of Money Lending, Microloans Article - Inc. Article

Goonie 07-11-2007 08:51 AM

Quote:

Originally Posted by Want2retire (Post 534750)
"Neither a borrower nor a lender be" has guided my decisions in these matters. I have never lent money to anybody, and I have never regretted not lending money. Works for me.

YMMV ("Your Mileage May Vary")

Same sentiments here. I don't borrow, and I don't lend. All of my friends are aware of that, and they won't ask.

That's what banks and credit unions are for, and they have much deeper pockets and a higher tolerance of risk than I do.

FinanceDude 07-11-2007 09:19 AM

I lent money once involving a huge moral issue. My best friend got his girlfriend pregnant, and they were both in college and unable to financially support a child. He came to me quite sheepishly and asked for a loan to get an abortion.

Being raised strict Catholic, I was caught up in a moral dilemna. I asked my priest what to do, and he told me to do what my heart told me to.

I ended up giving him the money, and she got the abortion. Fast forward 20 years, and they are married and have 3 beautiful children, and I feel better about it now knowing it turned out ok, but I felt pretty bad about it for several years..........:p

73ss454 07-11-2007 09:25 AM

I lent money to friends a few times and only got hit for a few bucks here and there.

Every time I lend money I'm afraid I'm going to end up on Judge Judy.

calmloki 07-11-2007 10:29 AM

We've done property loans on 4 different places. Those have all been through a small loan company with a title company involved. All are paying off as agreed with no stress. We've also loaned money to my gal's workmates. About a 1/4 of those loans have flaked out with the borrower getting fired and/or going bankrupt and/or vanishing like the morning mist. The ones that did pay back continue to ask for more loans; in some cases it is very obvious that they are spiraling downward and we stopped loaning, although they keep asking. Awkward. Interest earned on the personal unsecured loans has not begun to cover the amount lost (a couple thousand) through default. In one case I loaned expecting a default and no further contact with the borrower. One of those "friend that you don't want around you" kind of friends. FNBO is a much easier and more profitable kind of deal than personal loans.

retire@40 07-11-2007 11:53 AM

I had a good friend that I grew up with and knew since we were kids come to me desperate that he couldn't pay his rent and other expenses for the month due to "unforeseen circumstances."

He asked if I could loan him some money to get him through the month since he didn't know where else to turn. I asked how much he needed and gave it to him with no interest and on a handshake.

He got back on his feet, but never mentioned the loan again. After a year, I asked him if he was able to pay me back now. He said "pretty soon." Another year goes by and I asked again. He paid me 1/10 of what I loaned him and stopped calling me. Yet another year went by, I called him and asked if there was a problem since he hadn't called me in a year and he didn't make an effort to pay me back. He came by, gave me the rest of the money and I never heard from him again.

Never thought a friend like that could be so ungrateful.

Lesson learned: No more "loans" to friends.

OAG 07-11-2007 12:47 PM

IMHO loans to family are "gifts". Loans to friends have a VERY good chance of destroying the friendship. Want to lead money; lend it to a bank or credit union they usually repay on time and with interest.

Nords 07-11-2007 12:48 PM

Quote:

Originally Posted by JohnDoe (Post 534745)
Has anyone had success loaning money to non family members?

No. And our track record with family members has been even worse.

Quote:

Originally Posted by JohnDoe (Post 534745)
I am considering it. It would include collateral in the form of an IRA account, a notarized document, and a high interest rate. If it goes to term I should make a few thousand off the transaction.

You've just established the price on your friendship, and it sounds to me like you need a new friend. A true friend would never think to ask you for this type of loan. And a good friend would never loan money under these conditions.

IMO you're being exploited. Either give them the money on a handshake and kiss it goodbye, or politely decline and explain that you're barely covering your own expenses. But don't set it up as a business transaction, because it's not a business transaction!

kaudrey 07-11-2007 12:52 PM

I lent $800 a few years ago to one of my best friends when she was crunched for cash (a breakup led to her paying rent and 1/2 a mortgage for several months). She paid me back about a month later, no problems.

Last weekend, I was in her wedding. :)

calmloki 07-11-2007 01:07 PM

Quote:

Originally Posted by calmloki (Post 534809)
.... We've also loaned money to my gal's workmates. About a 1/4 of those loans have flaked out with the borrower getting fired and/or going bankrupt and/or vanishing like the morning mist. The ones that did pay back continue to ask for more loans; in some cases it is very obvious that they are spiraling downward and we stopped loaning, although they keep asking. Awkward. Interest earned on the personal unsecured loans has not begun to cover the amount lost (a couple thousand) through default. ....

One might think from the above that my gal isn't much in the money department. Not so. She's a full partner in our rentals in all senses and a much harder worker than i, just kinda a soft touch. She's headed south to take care of her Mom for a few weeks and just informed me that she doubled her money. Folded the hundreds in half as she was stocking her wallet. That's my girl!

bbbamI 07-11-2007 01:44 PM

I've loaned small amounts of money twice. I was paid back once.

On both occasions, I looked at it like I could afford to lose the money if the loan wasn't paid back.

SecondCor521 07-11-2007 01:52 PM

I've never lent or borrowed money from individuals family or non-family.

While I was married, though, we did gift money to her family on several occasions. We let her parents live with us rent free for about 9 months once to help them get "back on their feet". We gave her brother $4,000 for college. We bought her sister a used car once and delivered it to her across three state lines.

In all three cases, there was no appreciable long-term effect of our gifts. We like to think that we're giving people a leg up when we gift them like this. I think it is more accurate to say that if people want to change their situation in life they are the ones who have to change. I'm sure there are circumstances and situations where this isn't the case (like kaudrey's friend), but I bet it's true more often than not.

2Cor521

chinaco 07-11-2007 05:29 PM

You mean people actually loan money to family members... Interesting, all of my requests have been for loan help with debts and will pay me back sometime later... Of course, if they would not cover the debt then, how will they pay me back. I have not asked for repayment (it wouldn't do any good). Of course, if one asks for money, they must first listen to my lecture. Funny... I haven't been asked for money lately.

Loaning money to friends or co-workers/associates... Nope, Nada, Nein. Oh well, maybe a few bucks... but not any substantial amount of money. I am not a bank. If someone needs to borrow a lot of money from me, they are in financial trouble. Would I ever make an exception? Perhaps, depending on who it was and the situation. But if I did, I would be prepared to gift the money since I would not want to lose the friendship over it if they did not pay it back... The universe of "friends" that I would gift a substantial amount of money is very small.

Now I might make a substantial donation to a friend that is in need due to an expensive medical procedure that is life threatening... the type where people have a drive to raise money.

FIREd 07-11-2007 10:23 PM

I never talk about money with anyone outside the family (except of course with you guys). I don't mind talking about the usual taboos (politics, sex and religion), but I quickly bail out when the topic of money comes up in the conversation whether it is about investments, retirement or whatever. It seems to work: I have never been asked for money by anyone outside the family. I think that lending money to a friend is the best way to spoil that friendship. Lending money to family members is just as bad, the difference is that blood ties are harder to break (By the way when it comes to lending money to family, I am 0 and 3 on getting that money back).

Outtahere 07-12-2007 06:15 AM

Dh lends friends small amounts, nothing over $100, we lend to his kids and they've been very good about paying us back. When lending to the kids I look at it as a gift, if they pay us back it's a bonus. I tell him if his friends don't pay him back then they weren't friends to begin with, he's only lost one friend for non payment.

JohnDoe 07-12-2007 07:00 AM

I usually don't lend money either, but I made an exception.

This is a debt consolidation loan for a friend. I pretty much know his financial situation and income level, etc. This will help him bump up his credit score by clearing all the CC debt that his X-spouse ran up and help him keep his house.

Everyone knows people that fall into 3 categories...people who you would never lend money to, people who would probably pay you back, and people who will do what ever it takes to pay you back. My friend falls into the last one.

I remember about 16 years my F-I-L lent my wife and I 5k to help us buy our 1st house. We've come a long way since then.

I knew this topic would start a big discussion. ;)

Outtahere 07-12-2007 07:27 AM

Quote:

Originally Posted by JohnDoe (Post 535128)
I usually don't lend money either, but I made an exception.

This is a debt consolidation loan for a friend. I pretty much know his financial situation and income level, etc. This will help him bump up his credit score by clearing all the CC debt that his X-spouse ran up and help him keep his house.

We did this for my stepson, he needed to pay off the soon to be exwife and consolidate his bills. We drew up a loan agreement, he went over his finances with me and things looked okay. Dh was concerned but so far things have gone well, he pays the agreed amount on time every month.

Sue J 07-12-2007 08:16 AM

About 34 years ago I was a college freshman and my older sister was a college senior and newly married. I had always been a saver and she had always been a spender. Even after returning all their wedding gifts for cash, she and her husband were broke. They wanted to move and get a new start. She asked my parents for money and was refused. She asked me for a small loan and I said yes. I had the money, wasn't using it and wanted to help them out. They paid me back within about 6 months.

Here we are in 2007. I am still a saver, she is still a spender. But her husband #2 is in far better circumstances than the first one and can accommodate her retail lifestyle. We never mention that I loaned her that money back when she was in a tough spot. She is very kind and generous towards me and my family. I think we just have an understanding.

I don't think I would do that for anyone else.

Bigritchie 07-12-2007 10:25 AM

I am pretty much against loaning to friends and family too, but I must say I would not be where I am financially, if it were not for a family member loaning me $9,999 dollars to have extra cash in the bank to start my business, the person also cosigned on my loan, as banks were very unwilling to loan a 21 year old 100 grand.

Long story short, I wouldn't be about to retire at 30 without the persons generosity and love. They even let me pay my business loan off early, and then pay them back (they refused money till I was debt free).

That being said this was a situation with utter trust on both sides, and they knew I would do well. They knew I had been saving since a child to open my business.

bssc 07-12-2007 12:41 PM

I lent money to a friend twice, knowing that she was receiving divorce settlements to cover it. I told her after the second time that it was the last time I was going to do so and then said no when she came back a third time after blowing through her settlement.

Otherwise, no.

d 07-12-2007 07:31 PM

with some exceptions, i have lent money always assuming it would never be repaid, and that i would be reasonably comfortable with having made that "gift". as you might expect, i don't do this very often.

thefed 07-12-2007 08:31 PM

Quote:

Originally Posted by Bigritchie (Post 535210)
I am pretty much against loaning to friends and family too, but I must say I would not be where I am financially, if it were not for a family member loaning me $9,999 dollars to have extra cash in the bank to start my business, the person also cosigned on my loan, as banks were very unwilling to loan a 21 year old 100 grand.

Long story short, I wouldn't be about to retire at 30 without the persons generosity and love. They even let me pay my business loan off early, and then pay them back (they refused money till I was debt free).

That being said this was a situation with utter trust on both sides, and they knew I would do well. They knew I had been saving since a child to open my business.

what kind of business did you start, if i may ask

Bigritchie 07-12-2007 09:53 PM

Restaurant.

Webzter 07-12-2007 10:27 PM

Send your friend to prosper.com and offer to vet their finances and write an endorsement so they can get the money more easily.

Peaceful_Warrior 07-12-2007 10:31 PM

I have a group on Prosper.com and loan money on there.


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