Life lessons: Making loans to friends. Insights? Revelations?

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TorturedRegret
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Life lessons: Making loans to friends. Insights? Revelations?

Post by TorturedRegret »

I have a friend asking for money.
We all know this is a bad idea.
We all know the conventional wisdom of "consider it a gift" or just say no.

But, I want to hear specific life experiences when you did loan a friend money...
The lesson that made you learn that it's a bad idea to lend money to friends.

What sort of conclusions or themes did you arrive at from the experience?

1) I've learned that I deeply resent learning the person is still spending on himself instead of paying you back (eg: Going out to dinner)
I also resent the person is kicking back watching movies instead of working an extra night job or weekend job to pay you back.

2) I've learned that some people don't feel obligated to pay back debts once enough months/years pass.
New money being used to pay old experiences? No thanks. It's easier for the deadbeat to decide the friendship is not worth $X and just go MIA.

3) There is also the issue of being the enabler of the behavior that landed the person in the situation in the first place.
Again, now the way the person runs their life becomes my judgement. (Why did you buy that 3rd car if you now need money? Sell the cars)

Also, if you HAD to lend money to a friend, what would you do differently today?
Not leave it open ended? Make him sign paper? Charge interest?
livesoft
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by livesoft »

I have loaned money to a sibling so they could go to medical school. That worked out.

I have loaned money to my daughter so they could go to college. That is more troublesome, but as long as I keep cracking the monthly whip (and collecting late penalties), that is going to work out. And yes, I resent that my daughter spends more money than me, has a better job than I had at that age, drinks more, gets more dates, and looks better than me, too.

I have not loaned money to friends.
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Toons
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by Toons »

Do Not loan money to friends
Nuff said :happy
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btenny
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by btenny »

I loaned money to a sibling twice after being told it would be paid back. The pay back never happened and there was no effort to do any payback. It was not big money and I did not miss the money. But I had hard feelings due to the commitment that never happened. In hindsight I wish I had been more gracious at the time and just given them the money. So if you do decide to loan money be aware of how you view the loan and how it will effect your relationship.

I was also ask by a good PhD friend at work for a loan. We were not that close so I declined. Twelve months of so later he was arrested for robbing banks. It came out that his wife was spending like crazy for stuff and he could not cover the bills and was going BK. True story.
pinecone
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by pinecone »

Other than the occasional spot for lunch or a drink, I've never been in this situation. Still, I have wondered what I would do if a friend or family member asked for a significant amount of money.

It would depend on how they normally handle money. If they are the type who lives beyond their means, then no, I would not lend them money without some type of collateral and a promissory note.

I am the type of person who would live without, sell something, or take another job before I would ever ask anyone for money. I think most of my friends are this way as well.

I've heard that if you ever want to get someone out of your life for good, the easiest way is to lend them some money. Fortunately I have not needed to test that theory, but I keep it in mind just in case. :happy
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VictoriaF
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by VictoriaF »

pinecone wrote:I've heard that if you ever want to get someone out of your life for good, the easiest way is to lend them some money.
A corollary is that being unpleasant is a way to make easy money.

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Dimitri
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by Dimitri »

Some people will pay you back voluntarily. Others won't. For the latter cases it helps to have a friend who doesn't have ten fingers to collect on your behalf.
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retiredjg
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by retiredjg »

Whenever I've loaned money, I considered it a gift. Several times I got paid back which was nice.

I don't consider it a good idea to loan money to friends or family, but it does work out sometimes. But when it does not work out, the relationship can get rocky. I' prefer to avoid that.
stoptothink
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by stoptothink »

I have so many stories that they aren't really worth detailing. During the real estate crash, a sibling and several of my friends were heavily leveraged in real estate investments. Over the course of about two years, I "loaned" somewhere in the neighborhood of $50k to them in order to pay mortgages, save cars from being repossessed, pay off storage facility fees so their belongings would not get auctioned off, etc. I was single and doing OK, they all had families to support, so I felt bad. All have since recovered, two of them doing very well, and only one (of four) has even attempted to pay me back any of the money. That one calls me every few months and says he has a deal going and can start paying me back, but in total he has paid me about 5% of what he borrowed over the past 6yrs or so - he has a good job and supports his family, but unless he gets a windfall, paying me back isn't a concern...and that is the best outcome. The one lesson I learned is that not everybody has the same conscience as I do; a lot of people have no problem asking for money and even fewer feel guilt about owing others. All of them have purchased larger homes, luxury cars, and toys (boats, motorcycles, 4-wheelers, etc.) without any consideration to paying me back. It's not worth worrying about at this point, being paid back would be great, but it isn't a life-changing amount of money and thinking about it just frustrates me.

My wife and I now have an agreement that there is no personal lending under any circumstances, I now have a family to support. We broke it once, loaning my brother a five-figure sum for a house downpayment earlier this year, but he had a legit plan to pay us back (an upcoming bonus) and we had him sign a legal contract, and sure enough he paid us back in full within two-months. S
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cfs
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by cfs »

Pennies pennies and more pennies

During my working years, to my family I just gave them the money they needed and not a single person dared to abuse my generosity. During my work years, I used to have an envelope in one of my desk drawers (which was open during normal working hours) packed with 5s, 10s, and 20s, the envelope was labeled "stimulus package" and my co-workers knew the location, they knew that they could take what they needed for their lunch or any other emergency, and they knew that I wanted my money back--and, again, I never had a problem with anyone abusing my generosity. That was then, and this is now (retired, and loving life).
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downshiftme
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by downshiftme »

I loaned some money to a friend who was also an employee. We wrote up a real loan document and he did pay it all back on time. But it more or less poisoned the relationship. He is the one who asked for the loan, but he seemed to resent having to pay it back and shortly after it was repaid left the company and now avoids any contact. I wish I had refused to make the loan.
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by skepticalobserver »

btenny wrote:I was also ask by a good PhD friend at work for a loan. We were not that close so I declined. Twelve months of so later he was arrested for robbing banks. It came out that his wife was spending like crazy for stuff and he could not cover the bills and was going BK. True story
This is sad. Do you think if you'd made the loan things would have turned out much different?

My wife and I (and my sister and brother-in-law) loaned around $8,000 to a cousin, first for a business deal and later for payroll taxes. Everything fell through of course. He's a really sweet guy but he never, ever made mention of some sort of re-payment, not even a token. After that it's been hard to think of him in the same way and I let my wife do the talking when he calls.
denismurf
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by denismurf »

I have a close personal friend who is also a key member of a social structure we both belong to. He is self employed and way too lenient in his efforts to collect what his customers (many of whom are personal friends) owe him for his services.

A couple of years ago, he was forced to choose between paying his rent or eating. I told him to see me first if he was thinking about hocking his car and tools to survive or resorting to a high interest shark. A few weeks later, he asked if he could borrow a couple thousand to get him past a rough spot. I urged him to give me a realistic number; turned out to be $3,000. So I drew up a formal promissory note with interest and due dates specified. I told him I expected to be repaid whenever he could do so without going hungry or living on the street.

He has repaid me a little over $1000 to date, and that's fine with me.
sawhorse
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by sawhorse »

The vast majority of the time, it's a bad idea. In addition to the things you mention, you might end up needing the money yourself!

That said, there is one friend that I wouldn't hesitate to do it for. I would probably gift her the money outright. She is far from a perfect person, and I wouldn't really trust her to repay me. But many years ago, she literally saved my life. That's a special situation.
bklyn96
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by bklyn96 »

Now that we're retired we've decided we will no longer loan any money to people outside the family and will simply tell anyone who might ask that we're on a limited budget. We no longer have the time and energy to take on financial projects outside the immediate family.

After the financial turmoil of 2008 a co-worker and friend of my wife's asked for money telling us she would lose her house if she couldn't come up with the real estate taxes. We checked the public records and found, indeed, she was way behind in her taxes. We loaned her the $3,200 she said she needed. Public records show she did pay off her tax debt but all we've ever gotten back was a single $250 check. At work the woman still tells others how grateful she is for our help but words are cheap. Now, after six years, I only refer to her as "the thief."

On the other hand, back in the 1990's a close, long-time friend of my wife's borrowed money and was religious about sending small checks for several years until she had paid back the loan in full.

So much depends on the person, I think, and the depth of the friendship.
dhodson
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by dhodson »

It has never worked out well for me financially. Most of the loans turned into gifts (typically I was expecting this but not always). If you want or need the money back then don't do it .
theunknowntech
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by theunknowntech »

TorturedRegret wrote:I have a friend asking for money.
We all know this is a bad idea.
We all know the conventional wisdom of "consider it a gift" or just say no.

But, I want to hear specific life experiences when you did loan a friend money...
The lesson that made you learn that it's a bad idea to lend money to friends.

What sort of conclusions or themes did you arrive at from the experience?
My brother-in-law would lend significant sums of money to friends every now and then. Inevitably they would disappear and never be heard from again, in EVERY case. This was a beautiful way to end a friendship, and seriously piss off my sister-in-law. He considered himself a "big man" by doing so, but it turned out that he was always just a patsy. Why she stayed with him, is complicated.
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dgm
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by dgm »

Not a money lending experience, but close.

I was a manager on a project once, and one of my team members got laid off. He was just getting approval for a mortgage and wanted me to help him get it approved by verbally verifying he still worked there (technically he was still employed for another few weeks).

I refused of course, but felt a bit guilty I might have prevented him and his wife from getting a home.

Fast forward 1 year, mortgage crisis, housing bubble collapses, layoffs everywhere. I did not see it coming.

Leaving aside the legal implications, I shudder to think how I would have ruined his life by helping him get the loan.
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htdrag11
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by htdrag11 »

Never had problems loaning to friends, but just took a long time to get paid back.

Same cannot be said about family members; one has to croak for us to collect (only equity left is in the house). One was already written off as "gift". The others are paying, slowly.

Bottom line, friends I do not need to see during holidays, but family is hard to avoid. :oops: So all loans should be considered gifts, regardless of friends or families.

None of these is documented either.
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by Grt2bOutdoors »

Toons wrote:Do Not loan money to friends
Nuff said :happy
+1. The bottom line is "Don't lend money to friends or family". Retain your sanity and friendship. There is no lending, only giving as a gift.
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Grt2bOutdoors
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by Grt2bOutdoors »

If a bank is not willing to lend them money, what makes you think the borrower's represent a good credit risk for you to take? Think about that question, the very next time someone asks you for money.
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Dimitri
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by Dimitri »

Grt2bOutdoors wrote:If a bank is not willing to lend them money, what makes you think the borrower's represent a good credit risk for you to take? Think about that question, the very next time someone asks you for money.
I don't remember where I heard it, but in insurance there is no such thing as a bad risk, just a bad premium. A 90 year old man with a bad cough can get life insurance at the right price. The same goes with lending. However, most aren't willing to charge their friends the interest rates necessary to make the loan a good risk.

That said, I believe that the failure of most people to collect on personal loans made to friends is a matter of failure of either will or ability. They either aren't willing to push the issue for fear of damaging the friendship (failure of will) or don't have the ability to collect (failure of ability). If the former there isn't much hope for recovery. But if it a matter of ability, knowing someone who can have a little chat with the borrower about the high cost of dental work and the difficulty of obtaining gainful employment with two broken arms is useful. Or having an associate with less than ten fingers who can pay them a visit.

People want to pay back their loans. Sometimes they just need a little encouragement. As a lender you have to be willing to give them that little push to settle their account.
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bowtie
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by bowtie »

I learned: I naively thought my friend wanted to and would pay me back since he called it a loan and said he would. :happy
That however was an error.
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by Grt2bOutdoors »

Dimitri wrote:
Grt2bOutdoors wrote:If a bank is not willing to lend them money, what makes you think the borrower's represent a good credit risk for you to take? Think about that question, the very next time someone asks you for money.
People want to pay back their loans. Sometimes they just need a little encouragement. As a lender you have to be willing to give them that little push to settle their account.
Thank you, Luca! :)
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randomguy
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by randomguy »

Dimitri wrote:
Grt2bOutdoors wrote:If a bank is not willing to lend them money, what makes you think the borrower's represent a good credit risk for you to take? Think about that question, the very next time someone asks you for money.
I don't remember where I heard it, but in insurance there is no such thing as a bad risk, just a bad premium. A 90 year old man with a bad cough can get life insurance at the right price. The same goes with lending. However, most aren't willing to charge their friends the interest rates necessary to make the loan a good risk.

That said, I believe that the failure of most people to collect on personal loans made to friends is a matter of failure of either will or ability. They either aren't willing to push the issue for fear of damaging the friendship (failure of will) or don't have the ability to collect (failure of ability). If the former there isn't much hope for recovery. But if it a matter of ability, knowing someone who can have a little chat with the borrower about the high cost of dental work and the difficulty of obtaining gainful employment with two broken arms is useful. Or having an associate with less than ten fingers who can pay them a visit.

People want to pay back their loans. Sometimes they just need a little encouragement. As a lender you have to be willing to give them that little push to settle their account.
I like how so many posters seem to think thuggary is the answer. Have them sign a contract and use our court system to enforce the loan. Make sure to add terms to the contract where late payments really rack up the fees and that those fees are enough to pay for your lawyer.
gd
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by gd »

I had a great experience. I loaned a small amount to a girlfriend with lifestyle-dominating psychological money issues. After we broke up, I demanded the money back on principle. She resented it so much she completely disappeared from my life.
cjcerny
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by cjcerny »

I loan money to friends/family, but I only loan less than my state's small claim court limit and I make sure that the loan is legally documented for my state and gets stamped by a notary. I also make sure that they have collateral for it. Never had a problem yet.
IlliniDave
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by IlliniDave »

1) I learned it's best to "consider it a gift" or just say no.

I don't think I've ever been repaid money I've loaned (I don't put much effort into collection, I don't "loan" large sums). Often I lose contact with the person immediately afterward. I've inadvertently become an enabler.
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triskelion
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by triskelion »

Here's my rule on loaning money - it comes with strings, not just strings, but tie up the puppets type strings. If someone asks for a loan I tell them I would be happy to do so, but that am concerned about their finances. I express that I want to address not just the short term (a bill to be paid), but also the long term: What are the behaviors that got them there? What is the plan to address this situation? I tell them that the best way for us to tackle this together is to sit down, list out all their assets/liabilities and do a budget. The point being is that I expressed a desire to help and to address the root cause, rather than the symptom. If the person genuinely wants to change the situation, this will work and the money usually gets found in the budget, thus not requiring payment on my part either as a loan or a gift.
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by JupiterJones »

Apart from the social dynamics involved, it's simply a bad investment.

If they presented a worthwhile risk/reward profile, they could just get a loan from a bank. The fact that they are, instead, coming to you should be a huge red flag.
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VictoriaF
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by VictoriaF »

gd wrote:I had a great experience. I loaned a small amount to a girlfriend with lifestyle-dominating psychological money issues. After we broke up, I demanded the money back on principle. She resented it so much she completely disappeared from my life.
I had a similar scenario with an ex-husband. He tried to re-appear in my life, but his dishonesty with a relatively small amount of money became the final straw.

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NateInCT
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by NateInCT »

an easy way to avoid seeing them spend the money you give them on themselves is not to give it to them at all. Find out what they are having trouble with, decide if it is something worthy of assistance, and help them with that directly if it is. Don't let them touch the money. If they don't trust you enough to be specific about the problem, or too embarrassed to let you know what it is, consider that a warning and keep your money.

And yes consider it a 1-time gift and make sure they know that in advance. Setting proper expectations at the beginning can lessen headaches down the road. Unless its something like they lost their job, and their spouse needs expensive medical treatments to live. Then keep giving as long as it doesn't have a negative impact on your current and future financial security.
protagonist
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by protagonist »

VictoriaF wrote:
pinecone wrote:I've heard that if you ever want to get someone out of your life for good, the easiest way is to lend them some money.
A corollary is that being unpleasant is a way to make easy money.

Victoria
Hahaha!!!!!! How true!

You should write a book offering financial advice.
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by VictoriaF »

protagonist wrote:
VictoriaF wrote:
pinecone wrote:I've heard that if you ever want to get someone out of your life for good, the easiest way is to lend them some money.
A corollary is that being unpleasant is a way to make easy money.

Victoria
Hahaha!!!!!! How true!

You should write a book offering financial advice.
I might ... if the book I am writing now falls short of a bestseller.

Victoria
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KlingKlang
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by KlingKlang »

Just a story about being on the opposite side of the fence. I borrowed a moderate amount of money, $15K, from my parents when I purchased my first condo because I thought that it would be better to pay interest to them rather than to a bank. Wrote up a formal promissory note with interest and principle payments and due dates specified. Never missed a payment. After several months my mother starts calling up and asking for 'advances' on the loan payments. She was using the extra cash flow to finance her alcoholism. I finally just wrote them a check for the balance and called it quits.
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Ketawa
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by Ketawa »

I lended about $1300 total to my ex-girlfriend. It added up slowly mainly for rent, vet visits for her cats, and a community college class to finish up her degree. She was a poor undergraduate student at the time while I was attending graduate school on the government's dime.

I broke up with her a couple years ago. We are on good terms now and she has always maintained that she intends to pay me back, but has not started to. It does bug me that she now lives in San Francisco, the ultimate HCOL area, and hasn't bothered to send me $25/month to pay it back slowly, and previously she was in DC. However, she isn't in tech and probably struggles a little paycheck to paycheck. I think she's putting any extra cash towards her substantial student loans.

It's probably good that I don't see her in person, because then I think it would bother me more. I guess I learned that lending money to SOs is a tricky thing. We were probably at least 6 months into the relationship before she asked me for anything and it was a real need. In the future I just hope to avoid a situation where my SO is asking for money.
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by Grt2bOutdoors »

^ To avoid situations like that, develop a deep understanding of one's background, beliefs and actions before you make the leap to a SO status. You see yellow flags waving, be aware, you see red flags from the get-go or the yellows become red, you stop pursuing it. It only takes one sign of it, where there is smoke, there is fire. It doesn't get better, it only gets worse from there. Rare, rare, rare that situation improves, for it to improve the party needs to show a concerted effort on their part to better themselves. Enabling, whether is be money, behaviors on your part, etc. does no one any good, especially for the giver, it's easy for the taker. The taker will just move on to another "mark" and the cycle will perpetuate.
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GoldenFinch
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by GoldenFinch »

Grt2bOutdoors wrote:If a bank is not willing to lend them money, what makes you think the borrower's represent a good credit risk for you to take? Think about that question, the very next time someone asks you for money.
Yep! If someone can't get a loan from a bank, there is probably a good reason. My husband used to loan money when he was in his late 20s, early 30s, and learned the hard way that it was a bad idea. He has a business and employees (all paid well above industry average) sometimes treat him as if he were a bank and ask for loans. Typically these are younger people who clearly have not learned to live within their means or have no clue about money management. He always runs it by me and I remind him of past regrets and the purpose of banks. He feels badly about saying no. I would imagine it would be hard to ask someone for money, but apparently for some it's no big deal.
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by packet »

I've had two real experiences: one good, one to be determined.

The first was when my parents-in-law got a little behind on bills due to a string of bad luck. Yup, no emergency fund. My wife asked if we could help out, I of course, agreed. The one proviso was that we (the wife and I, not the parents) considered it a gift. The money was exchanged and no words were spoken of it for the next few months. Then, one day out of the blue, my father-in-law handed me a wad of cash, shook my hand, and said "thank you". My reply was, "Thank you. We're all in this together."

The second, as it turns out, was my brother-in-law (yes, son of afore mentioned parents-in-law). They had recently moved and had a lot up in the air between moving, new costs, and remaining old bills, etc. They were coming up a bit short. Again, no emergency fund. The wife and I stepped in to help out (after learning of the situation from the parents). This was a few months ago now and no words of it have been exchanged since. I'm fairly confident the money will find it's way back to us in time. But, for now, I don't think anything of it.

As has been said many times in this thread and others... if you're going to do it, it's a gift.

Considering the above 2 stories, if my parents-in-law were to again ask for money, we'd readily give to them what we could. As for the brother-in-law... he won't receive anything until the current debt is paid and we have a long chat about budgets, emergency funds, wants vs needs, etc.

Neither exchange was much, but it's the principle and the commentary on character that I pay the most attention to.

:beerCheers,
packet
Last edited by packet on Tue Sep 08, 2015 4:46 pm, edited 1 time in total.
First round’s on me.
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Meg77
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by Meg77 »

The Boyfriend
I lent a serious boyfriend a couple grand in college when I found out he was going to finance furniture for his first apartment. I thought we'd probably end up married and that his credit would become my credit, so I insisted on stepping in and lending him the money to save him the interest. Since I got an allowance from my college fund and his parents were relatively strapped, I was (naively) fine with paying for most of our entertainment.

I learned that this loan tied me to a person in an uncomfortable way. I was much more hesitant to start a fight or - later - break up with him since he could hold repayment of the loan over me. He never did pay, and we eventually broke up in dramatic fashion. When I attempted to collect by asking for the furniture, he insisted he lost it somehow in a move.

The chronic crisis friend
Earlier this year I leant $600 to a casual friend who has asked me for financial advice and help setting up a budget in the past. He went through a breakup 2 years ago with a breadwinner partner whose job he'd always moved around for. His resume was fragmented and consisted of low paid positions, but he's been trying earnestly to become independent and empowered despite dealing with several layoffs in the past 2 years (and a second major breakup). He called me humiliated but desperate for $600 to pay bills after a move to a cheaper home because his new job wasn't going to pay him for 4 weeks. He offered to pay interest and make it "official," and swore to pay it off within 3 months ($100 per pay period).

I learned that even good people apparently lack integrity/discipline/shame. I've also learned that if you want somebody out of your life, lending them money is a good way to accomplish it without drama, since they probably won't reach out to you anymore if they still owe you anything. I made the loan fully willing and able to lose the entire amount, although I definitely expected to be repaid. I didn't expect him to live off beans and rice until he paid me back either, although I was/am very judgmental when I see him check in on social media at restaurants, etc. He made a couple of payments and then I had to ask him for another couple of payments. Next thing you know he's raising money for a trip to Europe with his choir, which he then went on. I haven't had a payment since April and have been debating whether to ask him for it or just let the friendship go.
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sesq
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by sesq »

I have made 4 loans to family and friends. Mixed results.

First one - had a personal injury settlement. My brother was buying a house at the time and soaked up $5k as a loan to help in buy a house for him and his family. I was finishing school and kind of needed the liquidity but still agreed to the request. Eventually I was repaid when he came into a windfall.

Second one (the stupidest move I made) - made a friend an AU on a credit card (1,500 line) so he and his small biz could rent cars, book hotel rooms. Things were fine, and at some point the mail address got switched to the biz address, and then he and his biz partner had a falling out. The neither made payments, the biz partner moved away and a year or so later I got a collection call saying I owed $2,940. I paid it and despite promises have never received a dime. Really messed up my credit for a while too.

Third one, my wife's sister needed $3,500 working capital to tie her over through a divorce. I lent it. She made periodic payments and took care of it within a year.

Fourth one, my best man messed up his taxes and owed $9k. He projected to repay me within the year. Made payments in chunks ($1-2k). It took two and a half years but the last piece was just mailed out.

3 of 4 repaid. The last two loans were made in the last five years when the dollars at stake were a much smaller piece of my net worth, and I mentally thought gift. Even when I have offered to make the loan I resent it a bit while its outstanding. That said, for the 3 of 4 that were repaid it made a real difference to each of them in a time of need.

I could see myself lending/gifting again.
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by Artsdoctor »

I've only had one bad experience loaning money, and I had an "expected" default. The other times, it's been great.

If it's to my parent(s), I transfer over appreciated shares of mutual funds, the shares are sold, and the 0% capital gains bracket is the star of the show. But that's not a loan.

I have drawn up loan agreements with very close friends and I've charged them the lowest interest that the IRS allows. They set the term of the loan, and I've not had any problems since I started doing this about 10 years ago.

About 30 years ago, I loaned a colleague $1,000 and was reprimanded that it wasn't enough. They defaulted.

The final case involved a friend who I pretty much knew would never be able to pay me back but it was for a medical issue. I told him that I didn't need the money back but I again transferred over appreciated shares. He was responsible for the capital gains, I didn't get the money back, but he paid me back by cutting my hair for free for many years.

One thing's for sure: don't loan you can't afford to lose.
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by IPer »

yes, I have experienced 1, 2 and 3! I don't want to eat crow and list the experience, rather remember to forget just
don't do it!
Read the Wiki Wiki !
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prudent
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by prudent »

Have lent to two siblings and my parents.
Sibling 1 could easily repay, but hasn't and won't because knowing how she thinks, she figures I don't need the money, and that's reason enough not to repay. Between her and her husband, they make double what I do but squander it all. I'm a little irritated about not being repaid, but I knew going in how it would end up.

Sibling 2 doesn't have it. But they sacrifice everything for their kids' education and he works two jobs, so I have no problem not being repaid. They don't waste a dime.

Parents don't have it and never will, but I don't mind.

We have gifted to a couple friends who were in desperate need and were glad to be able to do it. It made a meaningful difference to their lives.

I am glad that close friends have never asked. Chances are very good we would say yes if we could and we know it most often leads to the loss of a friendship. In a way, that's one of the hidden benefits of retirement - being able to say you're on a fixed budget and can't do it. Hoping I can get to retirement before any friends ask! :)
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TorturedRegret
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by TorturedRegret »

stoptothink wrote:I "loaned" somewhere in the neighborhood of $50k to them in order to pay mortgages, save cars from being repossessed, pay off storage facility fees so their belongings would not get auctioned off, etc. All have since recovered, two of them doing very well, and only one (of four) has even attempted to pay me back any of the money.

All of them have purchased larger homes, luxury cars, and toys (boats, motorcycles, 4-wheelers, etc.) without any consideration to paying me back. It's not worth worrying about at this point, being paid back would be great, but it isn't a life-changing amount of money and thinking about it just frustrates me.

My wife and I now have an agreement that there is no personal lending under any circumstances, I now have a family to support. We broke it once, loaning my brother a five-figure sum for a house downpayment earlier this year, but he had a legit plan to pay us back (an upcoming bonus) and we had him sign a legal contract, and sure enough he paid us back in full within two-months. S
GREAT post, and exactly what I was looking for.
It is enraging to think these people spent money on upgrading themselves again before paying you back.
Some people are truly sociopathic.

I agree that the ONLY I would ever make another loan is
1) With a written contract. I've avoided this in the past, but now I realize the person NEEDS to be humiliated. Not enabled.
2) With a concrete repayment schedule and a consequence (sell off collateral)
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TorturedRegret
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by TorturedRegret »

downshiftme wrote:I loaned some money to a friend who was also an employee. We wrote up a real loan document and he did pay it all back on time. But it more or less poisoned the relationship. He is the one who asked for the loan, but he seemed to resent having to pay it back and shortly after it was repaid left the company and now avoids any contact. I wish I had refused to make the loan.
Another awesome post.
No good deed goes unpunished.
Somehow, you were the A-hole, b/c you dared to ask for your money back.
Let me guess, did he even call you cheap ??
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TorturedRegret
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by TorturedRegret »

bklyn96 wrote:Now, after six years, I only refer to her as "the thief."
Well said. That's exactly what she is.
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TorturedRegret
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by TorturedRegret »

Dimitri wrote:
Grt2bOutdoors wrote:People want to pay back their loans. Sometimes they just need a little encouragement.
This is an oxymoron. People who want to pay back their loans will find you. They will call you and ask your mailing address.
People who need coaxing, by definition, have no interest in paying you back.
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TorturedRegret
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by TorturedRegret »

NateInCT wrote:an easy way to avoid seeing them spend the money you give them on themselves is not to give it to them at all. Find out what they are having trouble with, decide if it is something worthy of assistance, and help them with that directly if it is. Don't let them touch the money. If they don't trust you enough to be specific about the problem, or too embarrassed to let you know what it is, consider that a warning and keep your money.

And yes consider it a 1-time gift and make sure they know that in advance. Setting proper expectations at the beginning can lessen headaches down the road. Unless its something like they lost their job, and their spouse needs expensive medical treatments to live. Then keep giving as long as it doesn't have a negative impact on your current and future financial security.
People don't want to be fixed. They just need their fix!
This is, however, a good way to dissuade the person from wanting a loan from you.
Most deadbeats just want the money, no questions asked.
Once you start asking questions, it's easier for them to go elsewhere.
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TorturedRegret
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Re: Life lessons: Making loans to friends. Insights? Revelations?

Post by TorturedRegret »

Ketawa wrote:I lended about $1300 total to my ex-girlfriend. I broke up with her a couple years ago. We are on good terms now and she has always maintained that she intends to pay me back, but has not started to. It does bug me that she now lives in San Francisco, the ultimate HCOL area, and hasn't bothered to send me $25/month to pay it back slowly, and previously she was in DC.

You're never seeing a penny, my friend.
She is saving up for a vacation, a down-payment, her retirement.
You are zero on the priority list.
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