When my sister and her husband split up, I lent her a couple thousand dollars to rent an apartment and get herself set up. I could afford to give it and considered it a gift not a loan, but she paid me back with interest when her divorce was finalized two years later.
Mixed results. Lent my sister 4 grand once when she was in a fairly tight spot and got it all back, although without interest (but I had specified it was interest-free to begin with). OTOH, lent a friend about $1500, and only got about $300 back, not to mention it, among other things, ruined the friendship.
I probably wouldn’t do such a thing again unless the person in question, say, needed some life-sustaining medical procedure, but then, I wouldn’t have the cash to cover something like that anyway.
I was about 24 and lent one of my older brothers $1300 which was a big chunk on my dream-trip-to-Europe money. The story was he needed it to keep his partner & their children from sleeping on a park bench. The money was spent on drugs, and the one payment I got bounced (which I found out very inconveniently in Spain.) This brother eventually pulled himself together, but now, more than 15 years later, my other older brother lives chronically on the edge of homelessness (should I start another thread - "Did you ever let someone live with you just ‘to get on their feet’-how did it work out?). Whenever I write a check for that one, I list it in Quicken as “Sibling Subsidy” and forget entirely about it.
I’ve loaned large sums of money over $2,000 and those got paid pack. When it’s under a thousand I think people are more apt to blow you off.
I’ve loaned three people $500 and never saw most of it. They made one or two payments then quit paying back. I don’t worry too much as, it was for a good cause, like getting a car fixed or getting phone and lights turned back on. You can’t let some mother and her kids sit in the dark.
I would never say “this is a gift” when you first loan it. People should make some attempt to pay you back and you don’t want to take away all their pride. You can always later on cancel out the debt if you want or don’t see them paying you back.
I got burned on a car given/sold to a friend back in the 70’s. It was my old “hot rod” that I had repaired and used to tow :eek: my good car down to Atlanta. I half expected the car to die during the trip but I was a pretty fair mechanic back in the day. The sale price was $600 bucks. I warned him, while fast in a straight line, it didn’t corner worth a damn. Three day later, I get called that the car has been totaled and friend is all banged up; ribs and facial damage. The car had a VEE in the hood where the light pole (no doubt badly positioned in the center of the road :)) had attacked. The steering wheel was also reshaped from the body impact. Never saw a dime of payment - my friend was too embarrased to see me so we both lost.
One niece with a drug problem wanted money for rent. I paid the landlord directly for the back 2 months and a couple in advance. Never did or expected to see the money again.
I won’t loan (just gift) and I always make the payment directly so, “things just came up”, doesn’t eat away the cash before the intended use.
We lent money to a friend in order for him to attend our wedding. We didn’t really expect to have it paid back (his finances tend to be somewhat erratic) but he did.
I think if you lend the money, you have to be prepared not to get it back. If it’s really important to you that you get it back, then you probably need both parties to sign a statement agreeing the amount loaned and the terms for repayment (e.g. “monthly intallments of $50 from March 2010 to March 2011”) but IANAL.
I’ve done it both ways. To me it kind of depends on why they need money.
Back in college (in a bit of a weird turnaround fro the normal student-parent dynamic) my mom and stepfather were looking to start a business and asked if I could loan them $2,000. My wife and I did, but we made it very clear it was a business deal. We had them sign a note, with a payment plan agreement and interest. And made it clear that failure to pay would be a treated roughly like them failing to pay back the bank.
But it was very stressful because I didn’t want to have to deal with it if they didn’t pay back. Fortunately they did. There are online facilitation services now to help keep the debt on a formal tone, that but I am very unlikely to enter into that kind of situation again where my “loan” is essentially an investment.
For other situations where need for money is more of an emergency thing (my sister once needed a significant amount to get doctors to schedule lung surgery) I don’t even present it as a loan where I won’t be upset if they never repay it. Because as much as I can say that, it is still going to be an issue if two years down the road they haven’t given back a dime and I’m looking at a Flickr album from a recent vacation to the South Pole. I did insist on being absolutely sure the money was going to the requested purpose by making the check directly to the hospital.
So I just give the money as a gift. If someday they surprise me by insisting on paying me back, that’s a bonus.
Just be honest in your evaluation of the emotional drama of not giving the money vs. the emotional drama of giving it and not getting it back.
I’ve given money away but never loaned it. When a former co-worker was down after a layoff a couple of us got together and donated a week’s paycheck. It’s pointless to think someone drowning in debt is going to be in a position to pay it back anytime soon. I once loaned a chunk of money to a business that I really liked (a bar) and just drank back the loan over time.
I have loaned money to my parents a few times, and never gotten any back. One time in particular was to help them get their repossessed car out of the towing yard. Once I stopped fretting about getting it back, my relationship with my mom improved. It’s not like it’s a one-way street, anyway. My mom cooks for me at least once a week, and occasionally helps with child care when my wife and I want to do a date night, and is generally a pretty dependable person in an emergency. I haven’t ever borrowed money from her, but she watches my dogs when I’m out of town, and whenever I need a ride from the airport or mechanical advice for my vehicle, she and dad never make a fuss about helping me out. I’ll never lend her money again, but I might give some to her if she was in trouble.
I’ve only ever loaned significant amounts (about $500, significant for me anyway) twice. Once to a friend at university who couldn’t pay his rent (he’d drank it all). It took a while but I eventually was paid back. The other time was to my sister when her card was skimmed in Venezuela. She paid me back when she’d sorted everything out with the back a month or so later. Guess I’ve been lucky I suppose.
I would be very hesitant to loan much above that - if you need that sort of money then IMHO you should be talking to a bank for a ‘real’ loan. And if the banks aren’t prepared to lend it to you (particularly in light of their recent excesses) then why the hell should I? I realise this view isn’t held by everyone (have had quite a dispute about this very subject with my partner). My reasoning is that if someone has dug themselves into that sort of financial hole, lending them more money doesn’t really help them - it just creates another debt to worry about and eventually repay.
Finally one recent horror story - a friend of my partners lent her mate about $5,000 for a new car. The debtor made a few payments but then these stopped after a month or so. Now, not only are the two on bad terms but the debtor’s even turned her kids against the creditor’s daughter. Nasty all round.
This.
That said, I had a good friend once (note past tense) who was continually short for his rent. I loaned him about $200 once, which at the time was, for me, a LOT of money. It didn’t irk me so much that he couldn’t pay it back soon, but it majorly irked me that he was going out clubbing or buying CDs and still hadn’t paid me back in full.
A while later (after he eventually paid me back) he was in desperate need of about $300, which I had but not in the “can afford to spare it” sense. I loaned it to him in exchange for letting me keep his original butcher album (which today in its so-so condition would be worth well over $1000, probably twice that or better and at the time was worth well over the $300). I made him sign an IOU that said I would hold the album for 6 months as collateral, and that at the end of that time if he had not paid me back I would sell it, keep $400, and give the rest to him. (In the IOU it seemed the amount of the loan was $400, but in fact I did not charge him any interest.)
He paid me back the $300 within a few weeks and redeemed the album but never got over the fact that I held something of value as collateral. I never lost a minute’s sleep over it; friendship is friendship and money is money.
The point if there is one: don’t feel shy about asking for collateral if it’s money you can’t afford to lose. You’ll give him or her far better terms than a pawnshop would and they’ll have their item back if they pay you back.
I often wonder about those people who not only borrow money from you, but secretly hit up other friends and relatives for money, like Ferret Herder’s sister in law. WTH do they do with it? Drugs? The lottery? Shopping sprees? Gambling debts?
My mother’s sister-in-law died suddenly of a heart attack. Her family was shocked to find out after the funeral that she had run up a gambling debt, (playing cards, I don’t know with who) of over $50,000.
Her kids immediately had their disabled father put his house in their names.
I have a good friend I constantly lent $20 to before her payday, and she always promptly paid it back. As I don’t work outside the home, I don’t have a lot of spare cash to throw around, but the loss of $20 wouldn’t have killed me if she didn’t repay. She does owe me about $200 for a gym membership she signed us up for, but as her finances are even worse now, I wouldn’t think of bringing it up.
A good question, my guess is all of the above (with alcohol included in the drugs category).
Exactly what everyone else said- only loan it if you can afford to lose it.
I’ve loaned friends large amounts of money twice, both times never expecting to see it again. One friend paid back half of it within a year, and the other called me a few days ago to pay me back everything, which was an absolutely huge shock and a nice surprise.
My family has a tradition of making quite formal interfamily loans. There’s always a note, an interest rate and set repayment terms. The interest is usually higher than you might get by buying a CD, but lower than would be paid on a similar commercial loan, so that both sides get a financial benefit. I think that the social consequences for anyone failing to pay one of these back when less that destitute would be dire. It hasn’t happened. These have all been good-sized loans, I think $5,000 and up. My mother’s family has been a bit less formal about things. She had a cousin disappear for years while owing another relative money. The cousin reappeared when he was able to pay it back. Apparently, he was too ashamed to show his face while he couldn’t afford to repay the loan.
With my case, my guesses were more shopping as “retail therapy,” making payments to any creditors that caught up with her, and probably some booze. Not to mention paying for her first month deposit at her new apartment - owned by a friend from high school, which is probably the only way she got in, as I think at that point her bank had even told her that she was no longer welcome as a customer.
I lent an old friend of mine $600 back in October 2008. So far, he has paid back $300 of it, which I received in November of 2009. I hope to see the rest but won’t be surprised or angry if I don’t.
Interesting! You must have known the relative’s social security number. I think this was a dandy way to get back at him.
We’ve given money to friends in need when we’ve had it to spare. The first few times were definitely seen as gifts on both ends of the transaction.
The next time (two separate occasions for the same family) nobody said anything explicit; I think they viewed it as a loan, we viewed it as a gift. They’ll occasionally mention “oh yeah, that loan…”. As it was “found money” (an inheritance) that allowed us to write those checks, and the friends are still in tough shape financially, we’re not holding our breath. If we get the cash back, that’s fine. If not, that’s fine too. Our friendship is worth FAR more than a couple thousand bucks.
Yes, you lose the $- and, you lose a friend. Never lend more than lunch money to a friend, only the kind of cash you can totally forget about.
When things were tight, I took one friend grocery shopping more than once. Maybe $40-$50 bucks. Never asked for it back, didn’t care.
I college I chipped in $300 to cover rent when a roomie bailed and we couldn’t make rent. The other two roomies were supposed to repay me, and they never did.
I loaned $1200 to a friend a few years ago, and $500 last year to another friend. I had both sign notes acknowledging the loan with a promise to repay so I could sue if they didn’t. Both repaid promptly.
I attribute the change to a better class of friends as I got older than the note, but I wouldn’t loan out money like that without one.