Loaning money

[Mamma283838]

I know the advice is not to mix money and friendship. But if I were to lend a few grand to a friend then what’s the best way to go about it? Put the amount and agreed repayments in writing of course - with another party to witness? Interest included and at what rate? Anything else?

For context we do have it to spare and if it wasn’t paid back it would be upsetting but not catastrophic. We currently have about ten times the money requested sat in a savings account that we are thinking about putting in an investment fund so we won’t get that for the period of the loan.

First things first, has the friend actually tried to get a loan? Sometimes people think their circumstances mean they won't qualify and they haven't explored the options.

Writing you are ok with it not being paid back, why is that? do you love them like you would a family member maybe even more.

Trouble is you may be able to afford it but if they don’t pay it back and you are ok what if they do that to another person in the future because you set a precedent.

I think they are looking at options but I don’t think they are that favourable.

I just meant that financially it wouldn’t make a huge dent but it’s still a lot of money to us. I would be upset with my friend of course. I’m
not concerned with setting a precedent, I’m concerned with how to manage it so we are paid back - I would be fine if it took a bit longer than expected. I don’t want to delve into their financial history.

I wouldn’t unless you want to harm the friendship. If I had the money, and was really inclined to help I’d give them it as a gift - there are very few people I’d do that for though. The problem with a loan is that it sits between you ever after, whether they pay it back or not. There are no safeguards you can put in place to guarantee that repay - even banks don’t manage that - and you’ll feel something if they don’t repay.

If you’re ok with not being paid back you may as well gift it in the first place. It’s never a good idea to lend money to friends.

Yeah this is what worries me more than anything - the friendship means a lot to me,
more than the money. It they were in dire straits then I would gift it to them. But this is more for something to help them out with that would improve things for them.

I don’t want to be too outing but maybe it’s similar to loaning them money to get a car that will improve their work opportunities. Without it they have no opportunities. (It’s not a car.)

Anyway I hear what you’re saying, but I want to give it my full consideration. I realise having it in writing doesn’t offer any guarantees but I should have it in writing regardless shouldn’t I.

If your concern is doing it in a way you’re paid back then don’t do it. The bank will analyse risk, if the bank thinks they are unlikely to pay it back that’s why the terms will be unfavourable.

Banks are in the business of loaning money, if they think it’s a bad bet I wouldn’t touch it.

If they can’t get a loan there’s a reason why

Get it in writing but be prepared not to get it back and lose the friendship because of it. That's often how it goes. Weirdly I've experienced resentment from the borrower when I asked for the money back.

Never again.

Ok, if I’ve already made the decision to say yes, how should I go about it?

If you’ve made the decision, and feel you can’t change it, by all means get something in writing but know it has no real legal standing unless you’re prepared to take them to court to get your money back.

Martin Lewis covered this on a recent radio 5 programme with Adrian Chiles. There's a draft loan contract on his MSE website.

You go to the bank. You withdraw the money in cash, cover it in petrol and put a match to it.

Youll have the same result with the money, but might end up with a friendship at the end of it

I once loaned a friend some money too help set up a business, few thousand with an agreement to repay starting after 6 months, never saw a penny of the money again. Business was very good for the first few years and they could have easily paid back the loan but spent the cash on luxuries instead. I occasionally here from them with the latest get rich quick plan but just ignore.

The money is gone as has the friendship!!

Another one here who lent money to a friend to pay off a DFS sofa loan at the end of the 0% rate and never saw it again.

I could have lived with that, because I had really valued the friendship, but nothing changed - he just continued to spend and spend far in excess of his income, was up to his eyeballs in informal debt to parents etc, and to cap it all off showed absolutely no contrition at all.

We haven't spoken for 16 years.

Thank you!

Well if the friendship means a lot to you then realistically are you going to take them to court if they don’t pay it back?. If you are then you need to get a properly written up loan agreement (solicitor or chat gpt if you don’t mind taking a risk). If you’re not going to take them to court if they don’t pay you back then it doesn’t really matter what format it’s in as it’s a “gentleman’s agreement (gentle ladies?), so the wording doesn’t really matter and you just need to agree the payment terms. If it was me, I wouldn’t charge interest, and you can’t be to ambitious with that. Maybe 5% Pa?

Do it properly with a solicitor.

If it's money to start a business or something else risky think about what will happen if the opportunity doesn't pay off.

Your friend will be unlikely to be able to pay you back unless they manage to get back into paid work and even then they might have debts from commercial lenders who will push themselves ahead of you for repayment.

Also their attitude to spending. This sort of thing tends to go wrong when the person who borrows the money spends on things like meals out, holidays, beauty treatments etc while claiming to be unable to repay the loan, so whether your friend would do that or live a more frugal lifestyle until they'd repaid you is relevant?

Even then the court can’t take money from someone - they can order you to pay it but you’ll have to keep returning to court when they don’t. Give the money don’t lend it - if you ever see it again then that will be a bonus. Protect yourself - lower your expectations in this situation, there is no proper way.

My friend’s ex boyfriend offered her £2/month repayment on the £2000 student loan she took out because he needed the money to set up a business. They had a contract etc.

A lot of people find it easier to lose a friendship than pay money back - will your friend be one of them?

The letter won’t mean much, it isn’t a fail safe option. And let’s say you lend the money and she doesn’t pay you back, is it really worth the expense, time and headspace taking her to a small claims court, possibly more than once?

If you can afford to, give her the money - don’t lend it.

I have loaned money to my friend. We have an informal, verbal arrangement and they pay back a fixed sum each month. The repayment is set at a low figure to ensure they can afford to make it each month. The loan is connected to their children, so there is no direct benefit to them.

I also know they are not the type to default. There are aspects that make me uncomfortable, but that's because of the way I was brought up with regards to money, savings and debt.

Having said that, they are my friend, they needed help, I was in a position to help, so I did.

Gift it - don’t do the contract.