AIBU to object to my husband taking a large loan for a friend?

[Sefal]

My husband has had a friend for some 40 years, it is probably more accurate to describe his friend as being like a brother to him.

His friend has recently got into some financial difficulties due to a building project costing more than expected. His friend has no way of obtaining money to finish the building project, and without money to finish it, the whole project will need to be ‘written off’, essentially throwing tens if not hundreds of thousands of pounds away and facing bankruptcy. My husband then offered to get a loan out for a lot of money (tens of thousands), to give to his friend on the promise his friend pays it back (plus the interest) when the project is completed. His friend has leant him money in the past, but it has always been from his savings never anything like this. It’s also been small amounts - a couple of grand here and there.

I think this is absolutely insane. Me and my husband both earn very well, but we do not have any savings and have loans and debts ourselves. We have also committed to some very high expenses ourselves for the next few years, and my husband in particular has been very anxious about money, which has in turn made me very anxious and I have been trying to find ways to increase our income. This loan would be hundreds of pounds a month, which as I pointed out, why are we worrying about money when my husband can afford an additional hundreds of pounds on a loan?

I also pointed out things such as:

what if your friend can’t pay you back
what if the project costs more
what if you need it paid off and your friend wants more time
what if your friend falls ill
what if you lose your job
what if you fall out with your friend

Essentially pointing out all the reasons why this is nuts. I also told him that if he chooses to do this, I won’t be supporting him nor will I be taking any notice of his fretting about money or wanting to live frugally. I’ve told him if it affects our lives e.g him saying we can’t afford something, I’ll be reminding him of his ridiculous loan. We’ve had a massive argument because of it.

AIBU?

Please please tell me that at the very least, he is thinking of having a proper contract with his friend re repayment, stating the amount borrowed, the interest (following the interest of the loan hed take), repayment period etc…
Because if his friend is on tge cups of bankruptcy, he absolutely need a watertight contract showing tge friend owes him those then of thousands pounds.

And also, if he is always going in about saving more, being more frugal, has HE made a budget and looked at your expenses now?
Has he made a budget looking at how what it would look like after the loan and where the money is coming from?

Honestly, I think he is reacting on emotions (or dare I say it, he is being too emotional). He sees a brother struggling and desperately wants to help. Fair enough.
The only way out imo is very unemotional, down to Earth approach - here are the numbers. Are we happy to cut out xyz (incl some of tge stuff HE is spenfing money on. Not just activities for the dcs or a haircut for you iyswim. No reason why he wouldn’t feel the pinch too)

Me and my husband both earn very well, but we do not have any savings and have loans and debts ourselves.

I don't understand why you have debts if he can take out 50k in unsecured loans based on his salary alone.

What on earth are you spending it all on.

What if the building work doesn't get completed? What if it doesn't get sold? What if it doesn't make a profit?
All perfectly possible things

And meanwhile dh has to continue paying it back monthly. Presumably friend will have no money towards that.

The worst that can happen is after handing over the money - your dh sees neither the money nor the friend ever again in his life. Is he prepared for this outcome?

Apologies if this has been mentioned before, but the 40-year friendship indicates you and your DH aren't spring chickens with the luxury of time to pay off your own debts and build savings, in which case your priorities should be securing your own financial futures, not someone else's.

@SunnyRedSnail "This shouldn't be a mates loan. It needs to be a business arrangement e.g. your DH is investing in a building project and his loan will be as a percentage of the build cost and therefore a percentage of the profit.
E.g. build cost £400k. Your DH is loaning £40k so he now owns 10% of the build. If the build then sells for £600k, your DH gets £60k back."

And if the build sells for just £400k? After the contractors and builders have been paid the £400k that it cost to build the property, the DH gets 10% of nothing and has lost his £40k. If it sells for less than £400k, the DH not only loses the £40k, but might still be liable for 10% of any shortfall.

Even if the property sells for £500k, the DH would only get £50k back, and although he has put £40k into the property, the costs of borrowing the £40k over 18-24 months will eat up most of the £10k "profit" in interest and fees.

In the meantime, the OP's family suffer two years of uncertainty, of financial cutbacks, all for potentially very little reward - and with a high risk of things going very badly.

There are commercial lenders who will lend money to this type of project - at a price - but if the friend cannot find anyone to lend him the money it will be because the whole project has been deemed unviable.

Yes you would impacted by this, if not actually liable for the debt itself. You are married. If it is defaulted on, it affects your credit rating (in fact I think it impacts your credit rating anyway as you reside at the same address - not sure though). It would also, in any proceedings to recoup the monies, lead to a charge against your home as the largest asset your DH owns, and therefore in a divorce for example it reduces the size of assets in the pot to share between you in the financial settlement.

This is financial idiocy, frankly. And under no circumstances should you accept it without a parallel legal document stating that in the event of default and a charge, it would be settled out of his 50% share of your home (not that that is much good if they want the money back and enforce a sale of your home). I would take legal advice to ascertain whether you would be better owning your home as tenants in kind or in common to protect your stake, too, and amend the title deeds accordingly.

I understand why, emotionally, your DH wants to do this, but it is just not reasonable. He needs to analyse his finances as if he was making a business decision, based purely on the data. Ask him to write down a detailed, comprehensive analysis of his (just his) monthly income and current outgoings. Surely it will show that he doesn’t have the amount spare to finance a new loan. If it would involve any extra input into family finances from your (personal) income it would need your agreement, which you’re not giving.

He needs to tell his friend that much as he wishes he could lend this money, he has now looked more closely into it and just can’t manage to do it because of the commitments he already has.

They’re married so financially linked, if payments aren’t made that effects her credit file.

Agree that this sounds crazy and in my experience a lot of banks wouldn't be prepared to lend for this purpose.

Didn't even need to read the explanation. You don't take out a loan for other people. Literally the dumbest shit you could do.

This is how investing works though. I’ll give you £x for x% of the ownership. DH needs to factor in the risk and up his % offer to mitigate the risk. The friend can take it or leave it. (Or better yet, not invest at all in this sinking shop).

If this goes ahead insist a charge (second charge) needs to be put against this guy's private residence for the amount BEFORE the money is handed over.

It's no good having paperwork or promises of repayment if the guys business goes bust he will say he can't pay and probably has limited liability - or without paperwork can deny the money was a loan at all and say it was a gift.

If you aren't familiar a charge is what a bank has registered against your home if you have a mortgage. When the house is sold the solicitor is obliged to repay the charge. If the chap has a mortgage hey would have the "first charge" and you would have to be the "second charge" so if the house was sold the bank is first in line for repayment of the charge and then you for repayment of the loan (second charge) - before the chap gets his sale money. If the money is repaid the charge can be removed.

If your husband's friend won't register a charge against his private residence (assuming he has one) putting his own home and equity at risk then there is no way you should put your money at risk if he is not willing to put his money at risk.

So your husband could say he will lend if a solicitor puts a charge against his private residence (only after this is done lend the money). This doesn't solve the problem that repayments might not be affordable for you or that forcing a sale of the chaps house will be a lengthy, costly process and destroy their friendship but it does secure your money to some extent assuming there is equity.

I think telling the chap your husband has applied for the loan and failed on affordability because he already has too much debt (as suggested by others) is a really good idea.

This sounds more like a fantasy thing, finance, sell, lots of profit, repaid, quids in.
I doubt h would see much, if any his of money back.

I would be contacting land registry to notify them and explain that a charge might be put against the house but you haven't authorised it. You can ask to be notified if any requests are made against your address. I did this and it is/was free to do.
If it was my h and he went ahead with this hare brained idea I would seriously be considering out future.
You say they've been friends for 40 odd years so guessing your h is at least 45.
Might be on good salary now but what if that changed?
Is this out of character for him to make such a flambouyant gesture?
A loan of a few grand is a lot less than what you are saying. Have you seen the actual building work? Is it in this country or abroad?
If his mate can't afford it he might well have to go bankrupt, it's not your h's place to sort out. Well he can obviously but not if it's dragging you into the fray.

This. Please speak to a financial advisor about your own finances.

He is an idiot. And, as his wife, you are on thr hook financially too

I have not always been a paragon of financial virtue but this is lunacy and the friend is one CF to ask.

Are you in a position where you could leave your marriage if your DH insists on going ahead? Because honestly that would be where my head was at if I was in this situation.

There’s no guarantee the friend will finish the project, even with a loan, and it may be hard to sell if it is completed.

The friend sounds likely to go bankrupt, but this personal loan would not be part of that if in your husbands name.

Presumably your husband would take years to pay it himself, and may not be able to afford other things, eg your mortgage payments.

Your husband won’t be doing his friend any good by screwing up financially along with him.

I’d get some proper financial advise about your liability for the loan. I’d assume if you are married it would be classed as a joint debt?

If the friend can’t get a loan in his own right I would be extremely worried about his ability to repay your husband. Your husband does realise that he will have to make all payments for the loan if the friend can’t/ won’t? If he is already worried about money and you have your own debts and no savings then this sounds one of the craziest ideas I’ve ever heard! If you were both rolling in it and well set up with savings and no debts then that’s a different story but surely this loan could end up bankrupting you both!!

Basically your dh taking a personal loan to gift 50k to his mate.
That is nuts.
A promise on a possibly bad venture (since no one else will loan) means nothing.
Divorce and tell him to marry his mate .
Even if he gets a stake eg 10% it could be a loss when sold

This can’t be real?!

Yanbu. I would be getting divorced.

This. Is DH going to lie on his loan application?

If banks, who make their profit from lending money to people, have cut off this friend’s supply of credit, your DH should take note.

You would assume incorrectly unless the loan is in joint names. The OP would have no requirement to repay a loan she's not signed up to. However, unless she can prove that she didn't benefit from the loan, and they divorced, it's value could be taken into account when drawing up a financial settlement.

In any case, he/they would be absolutely nuts to give the friend any money.