A few years out of college and working, I loaned money to a friend. I lost a friend, but got a relatively cheap lesson in life.
He was a colleague. We made about the same money, and had similar situations: working-class backgrounds, fathers were dead, so we had to help support our mothers. He had borrowed money at ridiculously high interest to help her pay for some stuff. To pay that loan off, he asked me to loan him a sum which was nothing to sneeze at at that point in my life, about one quarter of a year’s salary.
He offered–and I agreed–that he’d pay me nominal interest, less than banks were paying on savings. We drew up a promissory note and schedule. He paid every month. For a while. Then he started asking to slip a month. He started buying things that sure I would’ve waited for if I were in debt.
When he told me he was thinking about getting Minoxidil, I realized we had different views on debt. When I owed money, I treated the money as the lender’s property. The two times in my life I ever borrowed money (to buy my first car, and my house), I paid it back ahead of schedule. He looked at borrowed money as his property.
I eventually got about three-quarters of my money back. The lesson was that not everyone looks at debt the same way.
Since becoming prosperous, I have over the years given away lots of money (many times the aforementioned sum) to friends and family in need, and haven’t regretted it. But no loans.
Muhammad Ali once advised new champions to never loan money to friends and acquaintances. If you consider the person sufficiently deserving and in need, give them the money free and clear. He elaborated that the recipient would resent paying money to someone richer than themselves, even if they had emphatically agreed to do it.
My evil dad was in the debt collection business. I’m not cut out for that kind of work. I hate doing it, and that’s a big reason I don’t like lending money. I don’t know whether hounding people for their debts made him such a hard-nosed, toxic man, or if his nastiness drew him to that profession.
Yes, the OP gave a friend some money. When it comes to friends and family you should always assume that you gave them the money, otherwise don’t do it.
If you actually get paid back, call that a windfall bonus, unexpected it is. Loaning money to friends and family is a real good way to have them avoid you.
If there is a reason that a bank or credit union will not risk giving them the loan, tell them to fix whatever problem is preventing that loan. Often bad debts, even those already turned into a collection agency, can be added to your new load and be resolved. Happened to me when I tried to buy my first nice car, there were collections that I had no idea about, due to divorce and ex-wife handling money.
Oh, and don’t let your wife handle your money, no matter how much you trust her, things change.
I just remembered the one time I borrowed money friend. In 1972 I was buying a house for $31,800 if you can believe it (sold it a year and a half ago for $989,000) and if I could put $9000 down, I could take over the existing mortgage at a lower rate and also save all closing costs. I asked a friend, he had money in the bank earning bank interest and was happy to lend me $5000 if I paid bank interest. I signed a note to pay it back in five years. Actually did it in four. Kept the friend and saved a pile of money. It can work to lend to a friend but you should be clearheaded about it.
When I first bought a house, I borrowed some money from each of my grandmothers and also from my wife’s grandparents. In each case, I specified exactly the schedule on which I would pay back (1% of the original loan amount each month). But when my wife’s grandfather starting getting monthly checks he was very surprised, I was told. Which made me very surprised - it had never occurred to me that a half-decent person wouldn’t pay back a benefactor on the schedule that they said they would. Very depressing when you think about it. (Possibly he was influenced by his experience in running a community free loan society, which might have encountered a lot of deadbeats.)
Maybe you could use a direct approach and either call, text, or send an email and just say, "Hey, it’s the holidays and it turns out I need the money that I lent you sooner rather than later. I don’t mean to bug you but I could use the money that I lent you (to help pay credit card/holiday shopping). Think you could pay me back by (X date)?
If he says no, maybe just ask point blank: What’s the deal? You don’t have it now or you won’t have it ever? I mean, I didn’t say you could just take it; I lent it to you – as a friend. Come on, man. I don’t like this conversation anymore than you do, but come on, man!
I’m not normally a binary “If X, then not a friend” kinda guy, but in this case, I think if he continues to stiff you and find excuses not to pay, then that guy’s probably not a friend.
How do you figure that “no luxuries” = “live like a pauper”? Not everyone can afford to throw away $20,000, but for regular people there is a huge chasm between buying luxury items and “living like a pauper.”
I’ve never loaned money to a friend or acquaintance that I ever expected to see again. A couple of my kids have come looking to “borrow” money from me, and I knew that I would never see a cent of it returned. The last time my daughter quit her job with no prospects in sight, she came looking to “borrow” money to pay her mortgage. I just told her flat out that I’m not a bank. If she needs some cash, just ask for it and don’t play games that we both know are bullshit.
As for the OP: money given without specific terms is money that is none of your concern any longer. If the lendee wants to piss it away on frivolous things, it’s none of your business because there were no strings attached to it. Now, if he said he needed to pay the rent and you found out he frittered it on gifts for his girlfriend, then you’d have a right to be pissed off that he lied to you.
Hey, that $20,000 was about 90% of my net worth at the time. It wasn’t pocket change, and I’m not rich. My friend just needed help - and no way in hell would he have accepted a gift of that magnitude. Hell, that would have been worse - he’d have felt an obligation he had no real way to repay! At least with an official loan the debt is quantified in concrete terms. ETA: And to be entirely fair, if he ever does pay it back that’ll be one hell of a surprise payday!
And I came to the aforementioned conclusion because he said that his loan philosophy is “don’t buy luxuries until you can afford them” in a thread where the sticking point was flowers and chocolates. That is a damn low bar for what a “luxury item” is. If you don’t feel like you have the funds free to buy flowers once in a while, well, I suppose now we’re debating the definition of “pauper”.
We borrowed money from my wife’s aunt to buy our house. The bank would have been perfectly happy to loan it to us, so we were a good risk. We had an official mortgage registered with the state and everything (so we could take advantage of the mortgage interest tax deduction, but we paid off the loan so fast I don’t think it ever accrued enough interest to make up the cost of the official mortgage) so technically she could have foreclosed if we didn’t pay it back (not that she would have).
We paid less interest than we would have to the bank, but more than she was making from the savings account where the money was sitting. It worked out well all around, but it was hardly the typical “I’m in a tight fix, will you loan me money” sort of deal.
Long ago I learned that friends and family only get gifts. Gifts are onerous enough.
There is by the way no such thing as a “free gift”. Gifts ALWAYS imply reciprocity at some point. Even if that point is eighty years later when the diapers you changed for them become the diapers they change for you. People who imagine gifts have no strings still do not grasp how human societies work.
So gifts are in fact also loans, just more subtle ones.
That’s an interesting point - what is your definition of luxury?
My cleaning lady told me once that her idea of ‘luxury’ was to visit London. (I live in a country town about 90 miles from London.) She’d never travelled more than 50 miles from her home.
So to celebrate 25 years of her working for me, I took her and her husband on a trip to London to see the musical ‘42nd Street’. We ate in Chinatown (she’d never had Chinese food either!)
Now my idea of ‘luxury’ is to travel to Las Vegas (12,000 miles round-trip) and stay for a month at a top hotel on the Strip (preferably when the World Series of Poker is on.)
I am the family banker when it comes to loans. I require 2 things from the borrowers, a signed contract and collateral equivalent in value to the loan amount. I have been stiffed twice, in both cases I gave extra time to repay the money but the borrowers failed to pay. In both cases I believe they did not think I would sell the collateral. The first time I found out a 6 month old cell phone is not worth much. The second time the item sold for more than the amount loaned, I gave the extra money to the borrower. He still tells anyone that will listen that I stole the item. Both are now on my do not loan money list.
a : something adding to pleasure or comfort but not absolutely necessary one of life’s luxuries
b : an indulgence in something that provides pleasure, satisfaction, or ease
I agree with this, which means that when I buy Charmin extra-soft toilet paper, rather than the budget sandpaper, that unnecessary indulgence in my pleasure and comfort is a luxury item. My entire wall of DVDs and Blu-rays are luxury purchases. My nice projection TV is certainly a luxury purchase - and I bet you would agree about that! But the difference between the TV, the DVD and the toilet paper is just cost, and neither M-W nor I think that the cost is a factor in whether something is a luxury as opposed to a necessity.
So the difference between buying chocolates and roses while owing a loan and buying a vacation home while still paying off the mortgage on your house is not in how extravagant or expensive the item is - it’s whether it results in you failing to repay the loan according to the agreed-upon schedule. And the one consistent problem with the personal loans being discussed here is the two parties don’t agree about how the loan needs to be paid off. Either the lender doesn’t specify repayment terms and then assumes that the debtor is still obligated to comply with an imaginary standard, or the debtor doesn’t think the lender was serious about the terms that were explicitly set and gets aggrieved when they are not offered the clemency they expect from a friend or family member.
Every time I’ve lent money to a friend it’s made us both feel better. However that’s because the friend I’ve lent money to is very reliable, and because I go into it with no terms or expectations whatsoever.
(Okay, my friend felt a little bad that time he took three extra months to get together the money to repay me, through no fault of his own, but there wasn’t anything I could do about that except assure him it was not a problem.)
