To lend my friend money?

[mscrooge]

Friend is in really bad debt. He’s overwhelmed with interest fees. He lost the money through an investment in his own business, that wasn’t successful.

I do quite well financially, although I don’t have as much saved as I should (expensive divorce).

We just got into a lighthearted conversation about whether I’d be able to lend him some money, interest free, to clear some of the debt, but during the conversation I realised I actually could.

I am completely against either borrowing or lending money but for some reason I feel unexpectedly comfortable with this.

He has never ever been anything but super reliable, money-wise. I let him use my card for a while when he lost his while travelling, and he paid me back every single penny via bank transfer, immediately after he’d made each payment.

It’s a vast amount of money though. A year’s salary for some people. I can afford to lose it but I certainly hope not to!

We would have legal docs drawn up, which would stipulate the terms. I already have the drafts and I’m pretty comfortable with them.

I’m trying to think it through properly before I go ahead as I don’t want to be an idiot.

Assuming he pays me back, the only thing I have to lose is the interest I’d make having it in the bank, but it’s not a big enough amount to concern me.

What am I not thinking of?

Hell no!

Never ever lend money.

Plus how long have you known him ? I had a friend of 20 years who cut not just me but everyone out of her past life when she relocated countries. It was like we didn’t exist anymore.

Plus what % of your spare money are you considering lending?

Two red flags jumped out at me when I read this :

#1 - I do quite well financially, although I don’t have as much saved as I should (expensive divorce).

You cant afford to lose this money. Although youre doing well, youve had a financial setback with an expensive divorce. Save yourself before you start trying to save others.

#2 - We just got into a lighthearted conversation about whether I’d be able to lend him some money, interest free, to clear some of the debt

Really? How do you 'just get into a lighthearted conversation' about something as serious as this? I think you need to closely examine your own feelings and motivations about why you are so open to help someone who has such serious problems. This is not a response anyone has, unless they have unresolved feelings towards the person, or some deep unresolved personal issues within themselves. Are you attracted to this man? Do you secretly hope that helping him financially will draw you closer together, or make him grateful to you and see you in a new light? Will he then owe you something beyond the money? Do you have a deep rooted psychological need to always come to the rescue - viz the card issue earlier as well? Why does it trouble you so much that he's in over his head? Surely that was all from actions and decisions he took? What is he doing realistically to rescue himself?

Please dont commit to anything or promise anything on the spur of th emoment, this is so ill advised.

It will ruin the friendship

“He sold his house, moved in with his brother and got a different job when the business failed, so he could (and is….) making the repayments. But I agree I want to understand more.”

If he’s made such drastic changes to make the repayments, why isn’t he paying it off at such a rate that he’s not crippled by the interest?

It’s not that long since interest rates were at an all time low - higher for loans, but still low.

Most (I know not all) people have a chunk of equity from a house sale, given the rising prices of the last decade.

He couldn’t be in a cheaper housing position by the sounds of it…

So yes he’ll be “wasting” money on interest… but really how much?

I don’t like the sound of “lighthearted” conversation about it. Sounds more like manipulation. I’d have been more impressed if he’d actually asked you openly. Also… interest rates are now high so you will lose money yourself doing this.

For the situation for have been so extreme that he sold a house over it, and still owes money, rings alarm bells.

You sound like you understand there is a possibility he won’t pay it back, and you can afford to lose it.. and it would help your friend massively. I would do it if I could. I know what debt feels like that’s so hard to get out of.

Would you be prepared to just gift him the money? If the answer to that question is no, then it would be unwise to lend it as there is a small but definite chance you'd never get it back. Also what affect is it likely to have on your friendship to shift the power balance between you so much? Are you happy for it to permanently change your relationship, because it will in one way or another.

I'd say no. Currently he's paying his debts back because he has to and he knows there are penalties if he doesn't. I suspect he would take his foot off the pedal if he were repaying you instead. It will change the dynamic of your friendship too.

Not to mention, interest rates are currently pretty decent. If you lock your savings away for a few years you would get a healthy return.

By the way, lending him the money interest-free, means that you will not just eb helping someone else out at no cost to yourself. There is very much a cost to yourself, in that you lose the interest from saving or investing yourself. And thats aside from the risk that you will never see tha capital amount back.

But the interest is making it a very slow process.

If he goes to a debt charity, they are often able to get the interest stopped!! This is what he should be doing, your friendship will then be protected.

You should be putting your needs above his. You don’t know what your future needs will be, do you? There may be a time in the near future that you or some in your family desperately needs that money (20 - 30K?) which you may not have because he hasn’t paid you back, or not all of it. If it was a grand or less it would be different but this is on a whole other level.

I did this once and it was hard to get money back and didn't get all of it. Real pain

OP do remember the interest free is effectively a gift because it's a loss to you. If it's, say, 20k you're giving him, you're giving him about £1k in interest this year. Would you usually give him such large gifts?

The main thing I'd be cautious of is the preferential recovery any companies would have over him, and if he ends up wanting/needing to redefine the terms, it's very hard once the door is opened on this not to be willing to renegotiate again, on potentially more unfavourable terms.

But it can sometimes work despite all the typical advice not to do it. My parents have lent to me a number of times (think car, rental deposits, a month between jobs...), and I've always repayed, often earlier. We're both very comfortable with it because we're completely up front - it's always informal but underpinned by a lot of transparency. My parents would know my full take home pay, rent, outgoings etc, to see how much is left for a reasonable repayment.

What's the difference, really? Maybe the dynamic of indebtedness might change the friendship now and down the line - its within the normal realms of being grateful for your parents for all they do, whereas it's beyond what friends do?

Best of luck - lots of open conversations to be had, as you've said :)

He and I have already discussed this. I’m actually getting legal advice on how I incorporate my right to ask for immediate full repayment, in such an event.

Anyway, tons of great food for thoughts on this thread. I’ll be going back to him with more questions.

I am aware of this!

Lending a friend little bits here and there has essentially destroyed our friendship. She became completely reliant on me topping up her stupid spending and I felt trapped in the circle as for a while she always ended up owing me something and it felt like if I didn't give her it I'd never get it back.

At one point I ended up lending her about 750 on total in bits and bobs and instead of giving it back as a lump sum as she'd promised she took over a year to return it in bits and cost me money in the long run.

The crux of it was when she started "forgetting" she'd borrowed cash and needed reminding and chasing for it back and if she did remember she "forgot" how much it was and paid back less than what she borrowed. I barely talk to her now after all that.

It will only end in tears. Don't do it.

The friend shouldn't be out of debt though, he should have just shifted who he owes into the OP. What happens though is that owing a friend then creates a very uncomfortable dynamic, he feels awkward spending in front of her or going out, she looks like she's watching what he's doing. Then he feels she isn't a friend because she makes him feel bad, reduces payments because why should he suffer for someone who makes him feel bad, she gets disappointed at the behaviour, friendship lost. It's a story as old as time. Most of us learned it from a few £'00 in our teens or early 20S, some of us had to learn it a few times. Better to try to persuade OP not to learn it at such vast expense this time.

I wouldn't - even if you can afford to lose the money, are you prepared to lose the friendship? You don't say how old he is, how much the debt is and how long it would take to pay it back, but things can change. Servicing a debt with interest, may be hard but he could be making the repayments because he has to. Repaying a friend, is different. Are you prepared to take him to court if he misses a payment? What happens if/when he meets someone and wants to spend his money on other things, needs to move out of his brothers house and has to pay rent somewhere.....you can both start out with the best of intentions, but a lot can go wrong.

Friendships are never the same again whenever significant money is borrowed or lent. This is because it forever alters the power dynamic

Friendships are equal.

Introducing a power dynamic irreplaceably changes this.

This is why awkwardness can set in if one friend has a lot of money and another does not.

It can make the wealthy friend feel good to help out the poorer friend.

That friendship can never go back to being equal and it can easily lead to resentment for example, if the poorer friend feels the wealthier friend should be more generous or if the wealthier friend sees the poorer friend buying something or investing in something the wealthier one isn't happy with .

Can you see how investing in a person is investing in their life too and you are forever altered in their eyes because of it.

There are more than financial factors at stake. Psychological factors are arguably more powerful.

If you are happy about ruining the friendship for good, go ahead and lend him the money.

We just got into a lighthearted conversation about whether I’d be able to lend him some money, interest free, to clear some of the debt, but during the conversation I realised I actually could.

How coincidental!

But the interest is making it a very slow process.

Oh, so sad...

You are a mug, who has been oiled and flannelled and set up to think it was your idea.

If you could afford to lose a substantial sum of money, can I suggest that instead of lending to your friend - always a bad idea IMO - you look at donating some of it to the many local and national charities and good causes that are desperate for extra funds in the current COL crisis? That would be a much better use of your money!

I would think twice about lending £100 but a year’s salary? No way.

I would prefer to give someone a small amount as a gift if they were broke and desperate.

@mscrooge the best thing you can do to help your friend is to encourage him to get advice from Stepchange or Christians against poverty (you don’t need to be religious to use them). The charities will help with getting the interest frozen and a reasonable repayment plan. Don’t lend anything until your friend has had this debt advice.

Personally, I would never lend a friend a large amount of money if I wanted to keep the friendship. It almost always ends badly.

I would support him only to look at shifting debt to better interest rates etc , looking at debt management options or even bankruptcy

How can you demand full immediate repayment if he doesn't have the money ?

Just don't do this - end of story. There is a very high chance that you will lose both the friendship and the money.

It sounds like this might be the amount of money someone would be prepared to lose a friendship over. After all we're not talking about a tenner here are we ?