Lending Money to Someone

As an individual, is there any safest and best way to lend money to someone (be it your family, friend, or stranger), in which you have legal protections and can expect to get your money back (to the best extent)? Or is this something that is not feasible for individuals? We are talking about tens of thousand to hundreds thousand.

Comments

  • +229 votes

    NO
    .

    • /thread

      • You simply need to take possession of collateral (eg cars and jewellery) in excess of the value of the loan up front. Pawn shops and loan sharks do this everyday. For a shorter term loan which is to be repaid in full, a post-dated cheque can be helpful, although not risk-free.

        • Ofcourse the top answer would be by someone with a golden vault….

        • What a mad idea - it will show the borrower's true colours. If they say "wtf" or "nah dw about it" it demonstrates they don't intend to return it and don't want to be held accountable.

          If they say "yeah no worries" it shows that they are commited to returning it.

        • I don't think the post dated cheque is that helpful, too easy to mitigate, but agree otherwise.

    • EnuffSaid

  • Get a lawyer to write up a binding financial agreement

    • +17 votes

      So you have to pay thousands to the lawyer, and in the event of no-pay, spend much more money to sue the borrower, and even then you may still not get your money back? Is it really the only way?

      • +114 votes

        Great reason's for not lending anything in the first place.

      • You could skip the lawyer and lose the lot? That's another way.

        The simple answer is NO and if you do, accept all responsibility if/when you lose all your money and before you start a thread titled "I skipped a lawyer and lent $xxxxxx and now can't get it back".

        • Do you really need pay for a laywer to write such document? Aren't there templates written by other lawyers that can be used in such situations?

      • Here's the deal. When push comes to shove, they will either pay you back or they won't.

        If they pay you back, well that's great.

        If they don't you broadly are in two boats … (1) you have a contract in place this stipulates all the relevant terms, etc., or (2) you effectively attempt to "create a contract" based on emails, text messages, bank account transfers, and conversations.

        Both of those boats lead to legal action. The first might foreshorten that/give you greater certainty of outcome. The second can be a very drawn out process. In either event, both end up in a court situation as a final step.

        The point is that only a court can force someone to repay. There are no other options.

        This is ultimately the reason why banks exist. They do this all day, every day and ultimately accept the risk that someone defaults. Refer your family, friend, or stranger to their local bank manager for all their borrowing needs.

        • Bank on at least $10k for a day in court if you employ a barrister as well as your solicitor to prepare all the evidence. Obviously smaller amounts might be handled only by a solicitor, but you'd still be looking at $5,000 a day including preparation. Smaller debts yet might come under a state based system where lawyers are not allowed, but the outcome is not assured even when it seems to you you have a clear cut case.

          So what if you win after all that and they don't pay. Well, be prepared to pay more to enforce it and it will be drawn out. If it's a big enough amount, the other side could declare bankruptcy and you'll probably get pennies on the dollar at best. What about if you win and you get costs awarded to you? Well costs isn't really costs most of the time, so it will cover part of your costs, if they pay. If they don't pay, you'll have to get your costs audited at a few thousand dollars and then take it back to court.

          People REALLY underestimate the cost of taking things to court and the likely outcome that the other side will cough up the dough and all your costs.

          Don't lend money to anyone. Suggest they go to a bank. If the bank does not think they are a good risk, they are not a good risk for you.

          I'm still waiting on a family relative to pay me $16,500 for dragging me to court for one day. I got full costs awarded, because it was outrageous. But there has been no willingness to pay me even a single dollar. Scum.

      • There is another thread going on the daughter not returning her mum's $150k…pls take some learning out of it.

      • Well the problem is that if someone isn't going to pay you back, you're up the creek without a paddle unless you have a big ugly stick that you can wave at them. That's why you take collateral for a loan to protect yourself. If someone defaults, you can still sell the collateral and recover the loss on the loan.

        Your question can be rephrased to, "how can I protect myself cheaply if I someone defaults on a personal loan I've made to them?"

        The simple answer is that you cannot do it cheaply. Legal remedies are expensive and there are still ways that people can get out of paying the full amount of your loan plus any interest, even when you do have a lawyer on your side.

        That's why the top answer to your original query is "No" and the other trailing answers are "presume it is a gift that won't be repaid".

      • No, the other way is don't lend them money.

        You want it to be a sure thing, what if they declare bankruptcy? Whatever you put in place means 0.

        Just like any investment such as purchasing shares. Only put up what you can afford to lose. If not getting paid back has a significant impact on you don't do it.

        I would guess this is either family pressure (but we are family you can trust me) or a friend/acquintence has offered to pay you a good interest rate (the carrot on the stick).

        If you can't afford to lose it don't do it.

    • Even that is not a guarantee. Bankruptcy!

  • never do it

  • Just don't do it.

  • +89 votes

    The only way to lend money to a friend is to consider it a gift and not expect to get it back, if you do get it back it’s a pleasant surprise.

  • Tell them to try and get finance through a bank or similar institution.

    If they get knocked back it's likely because of bad credit or unable to service the loan.

    When they come back to you saying they couldn't get finance tell them you can't help them out also.

    Go to pub. Buy yourself a beer. You just dodged a bullet.

  • We are talking about tens of thousand to hundreds thousand

    NO, NO, NO, NO, NO!!!!!!!!!!

  • +2 votes

    What interest rate are you charging them?

    Or tell them, you've put it into the bank, so they can borrow it via the bank.

  • I Would say don't do it.

    If if you really want to loan money only loan what ever your willing to never get back. Just like the old saying can't get blood out of a stone. If they don't have money now whos to say they will have it later.

  • Have a read of this thread: https://www.ozbargain.com.au/node/586707

    Pretty much in your mind, you should either be considering it as a gift (and not expect it back) or don't do it at all.

      • +26 votes

        They said get a lawyer to write up an agreement and you said no to that as well. You're just here to be a menace.

        So accept the answer no or go speak to a lawyer.

        /thread

        • When did I say "no"?? I wanted to explore more options. And how am I a menace here?
          If you read other comments here, there are some good alternatives/details than just "go see a lawyer" cliche.

          • @leiiv: Frankly mate, your attitude sucks. Everyone here is looking out for your future wellbeing and you are being dismissive.

            You could always get them to write an IOU on a piece of paper and sign it if you want to avoid the lawyer route. See how that holds up in the future.

            • @Hunter14: Can you be more specific which of my attitude? I have never said that I had nor would lend my money. This is more of a theoretical question than practical advice.

              • @leiiv: Re-read the tone in your replies to helpful suggestions. You are asking strangers on the internet, not highly skilled lawyers who you are paying.

          • @leiiv: Here's some options:

            Option A) Speak to a lawyer today.

            Option B) Speak to a lawyer tomorrow.

            Option C) Speak to a lawyer the day after tomorrow.

          • @leiiv: Ok so you want good alternatives to a lawyer.

            Write a contract on a napkin at the bar in duplicate, wait for them go bankrupt then take them to court with your contract and enjoy getting laughed all the way out.

            There is no good alternative, even using a lawyer is not a good idea. There's is nothing other than accepting collateral upfront that would guarantee a return.

            And depending on whether you use a lawyer or not they could take you to court for the return of the collateral.

            And if they have collateral they should go through a proper lender.

      • You can DIY a private loan agreement using a template e.g. https://www.dtf.vic.gov.au/sites/default/files/document/Loan...
        Or use an online platform to do a private loan agreement e.g.
        https://credi.com/

        neither of these will help much if the person doesn’t pay it back as per the terms. In that instance you’d still have to take legal action against them which would upset the relationship and be costly. Of course this is better than lending with no written agreement.

        You’d still be best off not doing it and if you do only loan what you can afford to lose.

  • Not even Monopoly money.

  • Lend money but always never expect to get it back unless you want to destroy relationships.

  • 2 options in my opinion
    1. DO NOT do it
    2. Do it, and then forget your money.

    If you get it back its bonus else bye bye. I am talking from experience from friends n closest of relatives as i took option 2 with a twist (can't forget & i am still expecting it back)

  • Yes, draw up a contract. But beware that you need to do due diligence by background checks, etc. This will also form the basis of interest rate you charge which could be very high. If its your first time, you will need this to be reviewed by a lawyer, accountant, etc.

    Then with all this set in stone, they may refuse to pay you back. Then you need to read up on debt recovery with even more lawyers, etc.

    Probably easier to say no.

  • Pro tip - ask to borrow money off them first as you’ve had some big margin calls. Doubt they’ll ask you after that

  • Get the borrower to provide 150% collateral to an escrow or smart contract. Your funds would be safe and the borrower has no choice but to pay before they can access their collateral.

    • What is a smart contract? Any ideas on what can be the collaterals? Banks can use the property as the collateral. I assume that the exact same method used by the banks is not possible for individuals?

      • I don't think you're ready to lend anyone $10000s if you can't a simple two-word DYOR.

        Best of luck.

  • I let me best friend borrow $40,000 once - I never thought to question it based on our relationship. We've been friends our whole life (over 30 years), we were each best man at each's wedding. I got all the money back without any issue.

    I've heard of other people in similar situations/connections to mine where they're solely relying on 'trust', and they've lost their friend and money as a result.

    If someone's best friend is ready to screw them, then be prepared for anyone. Even family in some cases. Just avoid this situation unless you can perhaps get some collateral to secure your loan.

    • That friendship is definitely worth more than 40k. Good that he has your back and you have his no matter what.

      I prefer to look at it, as giving the money to the relative with no expectation of return. If they have the conscience, they will pay you back. And if not, it’s money you have “given” to write them off for life.

    • +10 votes

      they've lost their friend and money as a result.

      They never lost a friend, they just lost money.

  • Youre not poor like your friend are you?

  • Never mix money with friends/family.

    Not especially for that sort of amount.

  • If you want to lend money to relatives, don’t have an expectation of return. If they pay you back, they have a conscience. If not, you can write them off for life.

    I once helped an ex-colleague whom I considered a really good friend over 2 years, buy some skincare that was less than $100 with my discount code.

    Because I didn’t have time to calculate her discount, I gave her the items first. She never paid me back. Well she’s worth $60 in my eyes, and that was money well spent to see if she is trustworthy.

  • I have a family member lent money (6 figures) to another family member for real estate. Neither party is me nor am I involved other than being close to the lender.

    The way it was done was particularly bad.

    Wishy washy discussions about interest, repayment schedule or what happens if they cannot pay, I suspect because of the family ties these were relaxed.

    I only heard about it late and suggested to the lender to implement a repayment schedule because there was no visibility of first payment, the borrower would have defaulted on day one if through a bank.

    Nothing was done about it, in fact more was lent/borrowed.

    Now of course the borrower claims hardship and cannot pay for 6-9 months, that time frame is coming up soon.

    Do not lend to family members unless it is small amounts that you don't mind losing that won't ruin the relationship. I suspect because of the close family ties the borrower always feels entitled to very relaxed even favourable conditions, especially if the lender is considered well off.

  • Tell them to borrow from a bank - that is the business they are in. If a bank will not lend them the money then that should be a red flag

  • No, unless you are a Bikie.

  • +12 votes

    Just say "I can loan you the money. However, since you have no collateral, I'm gonna have to break your legs in advance."

  • From personal experience I've lent money to a couple of my siblings and I mean 6 figure sums but I always knew they would pay me back cause we're a close family and we didn't have much growing up. One of my brothers still owes me cause he needed quick cash and has been paying me back over about 2 years.
    So only you would know if you can trust them but you need to be 100% certain.
    Also if they're borrowing it to buy a car for eg tell them to get f#@$!ed cause that's just dumb.
    As most people have said if they don't pay you go to court and hope for the best but you could lose the cash, the relationship and whoever else is involved or takes sides.

    Edit
    I'm not rich btw so not like I'm a millionaire throwing money around.

  • Whether you use a lawyer or not you should start with three key things:
    1. Certainty of terms,
    2. Written evidence,
    3. Security for the loan.

    • Thanks. The problem is finding the right security and ensuring that you have legal standing to possess the security of the loan is not paid back.

      • Your entitlement to possession of the property should be clearly agreed - item 1, and recorded - item 2.
        Don't forget to register your security.

  • For proper loans, it's all laid out here: https://andreyev.com.au/2020/04/10/lending-to-family-members...

    And if you haven't done it before, a loan to a close family friend is what you'd call a deferred gift…

  • Never lend to family or friends, unless you're willing to write it off as a gift. "It" being either the money and/or relationship. You can draft up as many contracts as you want, the process of pursuing/enforcing the contract is going to ruin the relationships.

  • I'm slightly confused, especially the "lend to strangers" part.

    Are you considering lending to random people that ask for a loan or are you hanging out you shingle saying "I lend money - apply here"?

    I'd never lend to a stranger.

    I have lent substantial amounts ($50k - $250k) to close friends and family.

    My criteria:
    Why do they need the loan?
    Would they lend me money under the same circumstances?
    Have they exhibited totally honest character traits in the past?
    Do they have the financial ability to maintain the agreed repayments?
    Are they totally happy to borrow at the interest rates I stipulate (usually halfway between my bank interest and what that loan would cost if they went to the bank)?

    I knocked my sister-in law back because she thought paying me 8% for a car loan was a rip-off so I told her to go to the bank and pay the 15% they wanted.
    I had no problems lending my parents-in-law $250k @ 6% so they didn't have to get a bridging loan for a house purchase.

    • You can't just say that your sister in law thought 8% was a ripoff and end it there. What happened? :D Did she get a wake up call?

    • The "strangers" part is just a figure of speech. I just want to know if there is actually a proper process that makes the status of the borrower relatively irrelevant.

    • Wow asking 8% interest from your close family for something they really need sounds so stingy and a great way to ruin a relationship.

      • 8% isn't bad if they don't have to stretch their credit checks. Besides it could be 8% flat for a car loan. Payable over 8 years. At 1% I think it's a fantastic rate.

        Even if it was 8% pa it's far from usurious.

      • Something they really need?

        Did they really need a car when they already had a serviceable car? What's wrong with 8% when I was getting 4% in the bank and the minimum car loan was 15%?

        Did my parents in-law really need to build a custom designed home (and therefore needed to live in their existing home while the build got established) when there were hundreds of other new homes already available and they could have done a straight buy & sell.

        As they were the one coming to me asking for a loan, it wasn't me that was ruining the relationship. Also, I'm the one with the money and it was 700 points less than bank interest and fees or government charges.

        You've never actually taken out a bridging loan, have you.

        • I actually havent. I have however at times relied on my siblings during my uni days for expenses. If they had asked me for a 8% return that would have been a truly wtf moment. Which is also why I mentioned "something they really need" because I dont know the exact circumstance.

          • @earth worm jim: https://www.ozbargain.com.au/node/586707

            Daughter Doesn't Want to Return Her Mum`s Life Saving

          • @earth worm jim:

            I have however at times relied on my siblings during my uni days for expenses.

            Mate, these aren't a few thousand in "expenses". We are talking $20k upwards to $250k. Do you really think your siblings would loan you $250k over 12 months without some form of compensation?

            There's a reason I had $250k in liquid assets and that's because I make my money work. If I hadn't lent it to them it would have gone back into a fixed term account or short term funding via a solicitor or the bank (I don't think that is done anymore) or something else.

            • @brad1-8tsi: Even if you fix term 250k you will be looking at around 3% interest return max and for what a car costs even less. The banks change higher because they are a business and no bank would give you 8% return on your investment.
              So charging that much isn't about breaking even on opportunity cost but making a profit much like a bank. Depending on family dynamics it may seem off to some but justified to others.

              • @earth worm jim: Current rates for a bridging loan are 8%-11%.

                At the time a bridging loan was 16%-20% plus bank fees plus stamp duty.

                And I know what I could get as a short term investment at the time. I used to lend via CBA in 1 month blocks and the rates were excellent. I don't think it is a service that is offered anymore due to people not understanding the level of risk.

                What I was doing was very fair and much appreciated by the recipients.

              • @earth worm jim: Fintech pay between 7% to 14% APY right now and sometimes >15% APY when there aren’t enough lenders to meet demand.

        • I think what you're offering is very reasonable. It's win /win for both parties if its all repaid, and if not then you're the one with all the risk. If the sister in law can't see that then it's her issue. If someone did think it was stingy then I'd take that as a red flag, and suggest that they should go to a bank instead.

      • An 8% interest is a good rate for an uncollateralised low doc loan.

      • From another point of view, giving a 7% reduction in interest to your close family member for something like a car sounds pretty generous?

  • I'd take collateral e.g. Pink slip of car for a small loan.

  • Isn't that what banks are for? your talking 100k's ???

    Best way to lose friends is loan them $.

  • You only lend some money to someone you cared about only if you know that money is gone. If you can't part with that money then don't lend it out.

    And never ever lend money to strangers or even friends or family members you are not close with.

  • Only lend it if you can bare the risk of never seeing that money again. Otherwise just don't do it.

  • lol nice troll post op.

    • Sorry, why did you assume this is a troll? No, this is serious question. You can check my posting history, I don't troll..