Friends Want to Borrow Money

Some friends have recently lost a car and need to replace it urgently but don't have the funds to do it themselves.
I have always been open with my finances and encouraging others to save instead of taking out a loans for things but their current situation means they will either have to try and borrow from a bank at a high interest rate or I can offer them something better

I've known them both for a while now and trust them with money although I just wanted to know what OzBarganers thought of the situation?

Comments

  • Better that they just get a car loan with the bank.

    I've known them both for a while now and trust them with money

    It could all work out fine or could end up ruining a friendship. That little bit they save by you loaning it to them isn't worth it.

    • Have they already asked for the money? If so the friendship could already be ruined if OP declines.

      How much money are we talking about here? I wouldn't be loaning anything more than $5k for a car, and being very clear on the repayment expectations.
      Be prepared to either eat the loss or write off the friendship if you've misjudged it.

      • either and*

      • If a friendship is ruined because you declined them a loan, it wasn't much of a friendship.

        • But equally, if you're not willing to lend money to a friend, it wasn't much of a friendship

          • @dinna89: oof, those downvotes…. He does have a point….what kind of friend are you if you're not willing to help out in any way shape or form?

            • @Zachary: Lending Money with friends and family don't mix, sooner or later it will fall apart.
              If I can help out I give them the money I don't lend. I have given family member money but never lend them

              • @Hearthstone: Oh yes….I and some people here seem to use "loan" and "give" interchangeably…..without giving a thought as to what their specific definitions are…

            • @Zachary: There's a difference between helping a friend and lending them enough for a car/house deposit etc. I haven't even seen how much OP was thinking of lending them. I also haven't seen that the freinds have asked for a loan yet. So far this is just OP asking should I offer?

              A lot of people have to get by without a car. I know I wouldn't want to do it, but there are often ways around it.

            • @Zachary: I agreed with this for a long time, but my closest friend - almost a brother - will never return money unless its absolutely comfortable for him to do so… I've got a descent savings so I never really need the small loans back but its the principle of it all can take months or drag out to a year etc… then ill see him making purchases 2x or 3x what I loaned… gets to a point where its annoying to nag it but he eventually pays..

              from that experience I'd never lend him a big amount of money (in the thousands) as I'd never get it back on my terms…

              tldr; some people can be great friends but really weird with money

              • @Warehouse: yep this…

                Over time my best friend at the time 'borrowed' more and more over time… till it accumulated into the thousands

                In the beginning made small installments… but then stopped… but would still borrow a 100 now and then

                I put a full stop to lending any small amount, when we were in his new expensive car.. and hew as bragging about the accessories he bought with it…. a $100 rubbish bag

                It wasn't until our friendship ended that I got my money back in small installments.

                Did I say he always earned a lot more than me.

                I wouldn't say he was dodging payments, more that as a friend he felt comfortable in delaying. His needs were more important.

      • Good question as to whether they have asked. I've known people who actively seek to lend money as a way of bragging that they have saved and so that they can hold some sort of power over the other people (I wasnt the borrower either). It could ruin the friendship in two ways:

        • Friend never pays off the money… Every friendship has a value on it and you might find the value of the friendship is the amount of the loan.
        • OP acts superior as the "savior" of the friend that has borrowed the money and the friend gets jack of it.

        The saying is "Dont do business with friends or family".

        The reason sayings become common is because they are based on inter generational wisdom. Sayings that are not wise do not become common.

        Yes, they may have to pay more interest with the banks. But banks are faceless soulless institutions and most people hate banks but understand they have to pay them back otherwise they will have processes to recoup their money. Good change they will hate you and understand that you do not have easy processes to follow to recoup the money.

    • If you have to ask an anonymous online community for advice, then you probably already know the answer to your own question. If you deep down genuinely expect the arrangement to work out in the long term, you wouldn't be asking us. I don't know what your friend is like - they could be genuinely good people or simply friends of convenience. If you do go through with the loan, make sure the amount is one that you are able to live with should things go pear shaped.

  • +194 votes

    if you do lend your friend the money, consider its a write-off.

    • +44 votes

      I second this but would like to further add, consider the friend a write-off too.

    • Hopefully the car isn't a write-off before they pay OP back

    • I gave $8,500 to a friend to buy a car Dec 2019. I wrote it off in my balance sheet. It just means I won't be donating 2.5% of my estimated earned income for about 2 years to make up for it. Sad times for people who desperately need it.

      • The key questions is how much do they want? Mainly what I see these days is people spending too much on cars, and I don't mean people just buying expensive cars, I mean people who's income and assets mean they have no business buying an expensive car but they do anyway. A $2k camry is reliable transportation for someone who can't afford a better car or can't get a loan (IMO no one should be doing that anyway). But if they can afford that but want an 10k Accord then that's their own problem.

        • Agreed. We recently bought our 2nd car (2006 Honda Jazz for $3.5K and it does the job of getting me from 1 place to another. Cheap to run, maintain, and reliable.

  • Do you really think the risk of leaving money in the bank is the same as the risk of loaning money to friends?

  • Never loan friends money. EVER!

    Also lending with interest is incredibly miserly of you. Avoid this situation mate it can only end in tears.

    • Not even to cousins too!

    • Never seems a bit strong. I've lent on a few occasions and its mostly been positive. Obviously you need to weigh up the risk with who is involved but in my case I gave a few thousand to a close mate who was overseas and struggling. At the time time the money lent wasn't going to affect me much (had a good job so it was just negligible interest loss and I wasn't hurting for it) while literally keeping them from going into a violent debt cycle. I've also done it when I was a broke uni student and lent a mate my last hundred bucks for food because I knew I could make it to the next payment while they couldn't. Wasn't much money but relatively it was a much bigger risk.
      My two main rules that I follow that have worked well are that if you're borrowing money there's no secrets (eg you deserve to know where its going, and what steps are being taken to get make it back), and once it's all over and paid back it's forgotten (none of the whole "remember that time I did you a solid?" shit). Otherwise the motives become muddied and you rob someone already struggling of dignity.

      Interestingly the one I lent a few thousand to messaged about it only a few weeks ago and said how in the years since he's managed to pay off all debt and start saving and he puts a lot of it on the few months of borrowing plus having to set up a plan that came with it. So that was a pretty nice proof of concept.

      Anyway, my main counter point and reason for doing it the few times I have is that I've always seen it as an 'investment' in finding out if you can trust someone. If the money is something you can afford to lose, it think its worth it to discover if lifelong friend really is trustworthy. And it's no use having money if you can't help people you care about.

      Also, specific to OP's problem I'd be fine lending a close mate money for an urgent car but it'd better be cheaper than my shitbox or else it's obviously not an emergency haha.

      • Absolutely agree with you. I've been loaning money to my colleagues probably met them a few times. Not too close from 1-5k. They take their time and I got all my money back in 3 months.

        Not only that you have to think if I never get that money back is that okay with you. If it isn't easy no. If you're happy with them never retuning the money then go ahead and do so.

        Nowdays I can't really do that coz I'm in debt myself. I normally just quickly explain the situation and be done with.

        Ultimately whether you lend the money or not shouldn't affect the friend ship. Unless your friend ship is purely for gains not for being mates.

        • Ultimately whether you lend the money or not shouldn't affect the friend ship. Unless your friend ship is purely for gains not for being mates.

          I might have worded it poorly, I don't mean that I'm buying their dependence or anything, just that like any other risk/commitment it will either make the friendship stronger through mutual trust or end it, and if your money is expendable it is an easy chance to find out.

          I also somewhat disagree with the being ok to lose it. I will never not care about losing a couple grand, and would also be hurt by the broken trust, it just sometimes see it as worth it in a risk vs reward check.

    • What if the wife wants some money?

    • Like heroin, Not Even Once!

  • It's nice that you want to help, but I've seen too many of these things go bad. I'd suggest keeping out of it.

    However the questions to ask yourself are:
    Have they even asked for help? If they haven't there may be a reason. They may even feel uncomfortable or offended that you think they can't manage their own finances.
    How close are they to you? I know you said they have been friends for a long time, but do you talk to them daily, monthly? If it's not family (even if it is family) how do you know they won't back out.
    If they're a couple what happens if they split?
    If they miss a payment what's going to happen? What if they miss two in a row, or more?
    If (heaven forbid) anything happens to you where you need the money quickly, how do you get it back?

    I would suggest only doing it if you can afford to say goodbye to that money forever, because there's a chance that could happen.

  • are you prepared to give the money away to them as a gift? you may have known them for years, but sometimes that means very little and suddenly you've both lost money and friends

    if they have a homeloan do they have redraw money available to them?
    do they have family they can borrow from?
    what are you prepared to do if it goes pear shaped?
    are you going to secure the loan with anything? (eg a boat, a bunch of tools, jewellery, etc)

  • Nope terrible idea. I dont even loan family money!

  • +24 votes

    "recently lost a car". Have they contacted lost and found?

  • I would steer clear. Money changes people.

    I always say there's only two things that can end a friendship, money and women.

  • Some friends have recently lost a car

    Stolen? Written off? Exploded? Insured? Caught fire? Flooded? Elaborate….

  • I'd extremely suspicious of a friend who wants to 'borrow' money. The reason doesn't matter at all.

    There is nothing friendly about borrowing money.

    Good for you for having savings. Keep your money, it's for you.

  • Only 'loan' what you're willing to lose. Anything you get back is a bonus.

  • If you are willing to break legs and kneecaps, go for it

  • +15 votes

    See it as a gift, you won't see it back

  • +4 votes

    No.

  • are you trying to learn how to become loanshark?

  • +4 votes

    Never loan money to anyone, ever. Terrible idea. Don't do it.

  • I used to loan money to friends all the time, I got paid back once and I felt guilty by taking it..

  • Given that you're posting here it means that you are unsure yourself.
    If you trusted them enough that they'd pay you back you wouldn't have that doubt and would have done it.

  • +61 votes

    Best case scenario - you give them a loan and they pay you back on time. You have lost interest (not a big deal) and your friends appreciate your help but they'll always feel indebted to you.

    Common scenario - they're bad with money. People who are bad with money do not usually become good overnight. They will be late repaying and you'll be frustrated and your friendship may survive but it will certainly be rough and you're going to be perceived as greedy/strict/corporate etc.

    Most common scenario - you'll never get all your money back and even though they're apologetic today, time will warp their perception of you. They won't just owe you money but now you're also the bad guy.

    • Indeed. Rarely does a good deed go unpunished.

    • I completely get this point but there are the rare occations where it is quite useful. I was travelling overseas and got screwed by the airlines and what not. Long story short I was tight on funds. Asked the friend for like 1k I think. He wired it over.

      Paid him back when I had the money. Nothing we are both still the best of friends. and i simply appreciate the friendship more.

      • I think someone who can't afford a $1k travel emergency has no business travelling overseas in the first place IMHO.

        • ??? Are we all meant to have many thousands of dollars in emergency fund?

          Okay.. a bit more on the finances then. I was stuck in Osaka and got screwed by an airline. Had to pay for a last minute flight in the airport for 2.2 thousand dollars (which was part of my "emergency fund") to make it to my next destination. The airline had incorrectly denied my boarding (for which I got a refund many months later). I needed the money to get through the next few weeks on my shoestring travel.

          I was 20 and on a 6 month travel abroad journey. I would kind of understand your point if you are travelling for like 14 days over to Thailand or something but not every journey is the same and sometimes shit happens where all the emergency funds in the world cant help you.

          p.s. before you say why didnt you get travel insurance, I did have it. They were refusing to pay due to some technicalities.

          • @GreyRabbit: "??? Are we all meant to have many thousands of dollars in emergency fund?"

            I would. Obviously not everyone does, but then you get stuck overseas having to borrow $1k off friends to get home.

          • @GreyRabbit:

            ??? Are we all meant to have many thousands of dollars in emergency fund?

            Yes apparently, or else we'd be screwed….

  • I never lend money to friends. If they're close enough to me, I just give it to them.

    If they decide they want to give it back later, then… bonus!

    • I like that concept. What's your rough rule for how much you give a close friend? Eg even if I'm super comfortable with savings and stuff I'd struggle to gift my best mates a car.

      • What's your rough rule for how much you give a close friend?

        I don't really have any set rules on what to give. I'm by no means, well-off or have an unlimited bank account and there's way too many people to be giving it to everyone, but I'd say that it comes down to a "need" thing. If I see someone that's tried and tried and can't seem to get things right and I have the ability to help them, then I will. In my mind, if I can sacrifice a little for someone to gain a lot, then that's how it is. Like someone mentioned earlier, I'm also conscious of the fact that it could leave someone with the "I owe them" feeling, so anything that's given is never spoken of again. Even when there's any disagreements or arguments later on.

        Some might say it's silly, but I've trusted my own judgement all these years with the friends I have.

        When I had a sudden health scare and was immobile for a few months last year, my home was like a revolving door with local, interstate and international friends coming back and forth to make sure I was never alone. My bank account had so many random deposits in there to make sure I had enough to cover my mortgage etc that I easily could have taken another year off work. Some of these guys even went to the effort of physically withdrawing cash and depositing it in so that I couldn't trace it it back! Something like this reinforces my thoughts that no amount of money that I pass around would ever be able to buy friends like these.

        For those who say that their "friends' haven't paid back a loan, it could easily have been "paid back", in ways other than cash, that they haven't really considered.

        PS, I've only ever gifted one car. It wasn't just my mate who needed it. His elderly parents also needed it too. And I had a spare car sitting there because I'd already bought a new one.

  • Do they want to replace the car?
    Do they want to borrow money from you to do it?
    Have they asked?

    Are they ok with you registering a security interest against the vehicle on the PPSR and will the vehicle be insured at all times?

  • How sure are you that they can't afford it? And did they ask for a loan or is it your idea? You don't want to become the "money guy"/ATM in your social circle. If you do go ahead, I would suggest a signed agreement. If they won't sign then you know something is weird. Have been burnt before by not doing this.

  • I echo everyone else here - if you're going to loan them money, be prepared to lose it (i.e. to consider it a gift) or to lose the friendship.

    Your desire to help out your friends is commendable, but as has been pointed out, there is so much potential for things to go wrong and to skew the view on the relationship. My assumption is that you're going to have them pay it back in installments just like a loan (but without interest). How would you feel if they missed a payment because they said that there were skint, but then you see them post a Facebook image from an expensive restaurant? Would you feel comfortable confronting them about it? And what would happen to your friendship if you did?

    "I have always been open with my finances" - how open are we talking? Sharing your salary and that you have an emergency fund is fine among mates, but I'd be careful about sharing exactly how much money you have in the bank - opens you up for jealousy and/or friends asking for money.

    • "I have always been open with my finances"

      my wallet is always open … how come it's always empty … ?

  • How much do they want?

  • Never
    No
    Nada

  • Can they save up $1,150? If so, this beauty is perfect for them!

    • Is that price inclusive of the meth stashed in the upholstery?

      • Pretty sure being on a low income or owning a 'beater' car doesn't mean that you are also a meth user.

        • I own a Corolla in worse shape.

          Pretty sure having a crap car doesn't mean you have to take offence to everything.

    • That's a pretty good option for a cheap car. I've seen way shittier

  • The StepUP Loan program, delivered in partnership with NAB, brings low interest loans of between $800 and $3,000 to people on low incomes.
    https://goodshepherdmicrofinance.org.au/services/stepup-loan...
    allows car loans up to $3K to approved applicants.