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.
Lending Money to Someone
leiiv on 30/11/2020 - 09:32
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Loan shark, if they don’t pay back get bikies onto them. You are thinking of a more civilised way.
Family is different from friends, but i remember my mate once told me if you are going to lend money, you need to think of it as giving away the money and if you ever get it back then its a bonus. But you cant rely on it coming back as otherwise it can cause issues with your friends / family. I would do it with my closest friends and family no doubts about it. But once i lent to a friend who was not a close friend but someone i saw often enough. He did pay it back over 9 months or so but it was a bit slow going at times and also it was hard to sometimes see him spending money on pokies or massages etc when we went out for lunch /dinners as by default you always end up thinking, is he wasting money that could be used to pay you back.
Don’t keep telling people how rich you are in the first place 🤷♂️. If you do they’ll keep finding reasons to borrow some 😛
hundreds thousand.
nope…
This. Never show off that you have a lot of money or tell anyone, not even your parents because the older they get, the bigger gossip machines they become.
Nobody will ask you for money if they don’t know you have a lot of it in the first place.
I'm at the point where I don't even lend someone a minuscule amount of money (talking like $20). It's either a gift with no expectation of repayment or I just don't do it. Always leads to trouble and the thought of lending a friend 100k just makes me feel sick lmao.
Is this for like a business debt or investment or just general debt?
The debt purpose is for a business or investment. But who knows what they actually use the money for.
But who knows what they actually use the money for.
I know exactly what they will use the money for and I can guarantee you it is 99% not business related…
If it really is for business, then ask them to setup or workout a venture debt agreement or transfer some equity over to you as collateral.
Would that be similar to what VCs do when they invest in startups?
@leiiv: Yes but it was for family member that i really trusted and in my mind that money was already written off as sort of a donation.
Banks ask why you're borrowing the money. Shouldn't you have that same right?
Currently interest rates are at the lowest it's ever been. It is your best interest if they took the loan out with the bank. It's cheap to borrow money, and you don't risk losing hundreds of thousands of dollars. If banks won't lend the money, there has to be a reason - they can't service the repayments, and/or they are unlikely to succeed. Banks conduct business loans regularly and would be more correct in their assessment on whether they would lend money or not.
If you're hellbent on lending the money, get a lawyer to draw up a contract and set conditions, how are repayments structured, time frame to repay everything, the interest rate, and what happens if the person can't repay it - is there a repossession of an asset, or they're obliged to pay you x% from every paycheck until y date? Yes, that costs thousands of dollars, but you are risking hundreds of thousands but wouldn't pay 5% as security? I'll be particularly suspicious if the borrower wouldn't be keen on signing.
I would not go anywhere near lending money to friends or family unless they're your children because it's a gift/inheritance. Many children "borrow" a house deposit. Parents generally don't expect it back - it would nice to have it back, but not expected. If things go pear-shaped, you lose the money and the relationship. If you see them on holidays, or hear about any purchases they make, you would start to resent the person thinking "if you have money to make that purchase, why cant you repay my loan?" That's the better outcomes. There are many, many examples of people running off with a relative's or lifelong friend's money. I've seen it happen with a few hundreds, you're putting hundreds of thousands at risk.
Honestly, don't even do it. I thought I could trust my family. Turns out my sister was getting money to pay for her husbands gambling addiction.
She lied to me saying she needed money to start up a business, for renovations. I love my family to bits, never questioned their honesty and integrity all my life.
Then my other siblings told me the story.
That's 50k I've accepted I will never get back. I'm annoyed at her for being dishonest. Goes to show, you really can't trust people even at the best/worst of times.
Were you close to the family member?
Wow, sorry to hear. You have a patience of a saint to just let 50K go and be 'annoyed'.
No offence, but what kind of low life sibling takes 50K to support her husband's gambling? It would be much more understandable if it was to feed her kids. Did she think putting that 50K on the next multi would fix all their problems? Did she show any remorse when you confronted her?
Yeah nah don't do it. Unless the amt (whether that be $100 or $1m) is small to u and u don't mind losing it.
Also ask mutual friends to see if this same person has been going around asking for money.
Could OP use a statutory declaration ?
"I borrowed this amount of money on this date and intend to pay it back by" ect
Do not do it. Only loan an amount you can live without if they never pay you back.
Also when it comes to getting your money back, you are almost going to chase after it.Ideally don't where it can be avoided, or only lend what you are willing to walk away from and never get back. Only lend in amounts that won't sour any relationships you wish to keep if it goes unpaid and amounts that won't put you (or your family) out significantly if or when the debt isn't repaid.
As I posted elsewhere (the other thread about money lending and not getting it back).
The issue with the house situation is that any sums of money given to someone for a deposit etc often (from my understanding, maybe it's lender specific) need to be accompanied by a stat dec that it is a non-repayable gift to the recipient. Obviously that money "gift" would be going toward the deposit and can't just be taken back out.
Lent a work mate a decent chunk of money coz she could barely pay rent. Was a friend at the time. She left then ghosted me.
Don't do it.
So no benefits?
I once loaned $1000 to a BFF mate. Then loaned him another $1000 on request. Told him NO on a 3rd attempt to borrow from me, this time to get a car (sic!). Now I have no $2000, and no BFF mate.
DO. NOT. GIVE. FREE. MONEY. TO. ANYONE. YOU. LIKE.
In any human's mind, money received for free = money they were given, not loaned.
sadly, I fall in the same category.
more or less the same for me, but my mistake only cost me a few hundred, the bastard ghosted me soon afterwards (and I wasn't even chasing him for repayments).
ran into him years later, I was over it long ago and just wanted to have a quick chat to see how he is going, but he more or less just ran away from me.
Sad.
I loaned $1000-2000, it's been that long I cannot remember.
I had not asked for the money back or communicated with her for 10 years or more.I saw her randomly one day, she did not see me. I thought she was dead even because she was not in a good emotional state at the time when I loaned the money. (that was probably a black flag in the first place).
But I was happy to see she was fine (from afar) and left it at that.
You have a good soul :)
Trust me DON"T.
Even if there was a contract and agreement in place, if the borrower is broke and doesn't have any assets or money to pay you back (or is indebted to a whole bunch of other people), if things go wrong you will still lose the loan amount and also the lawyer fees because you can't squeeze people for money if they have nothing.
If you want to get rid of someone out of your life, lend them a fiddy.
I'm going to assume you're talking a personal loan or a loan to start a business as opposed to some sort of business trade financing. I've also made some assumptions for below.
For a general person, these days, money is so easy to borrow from official sources. Sent them to a bank or another institution. It'll come down to whether you can trust them. Recovering money can cost you large sums of money in debt collection and/or lawyer fees.
Most finance is done business to business. Either some sort of terms of credit where the selling firm sells to another business with payment terms or some sort of investment in exchange for equity. It comes down to the people involved. In Business, it's often the case that the potential long term benefit to both parties is greater than the loaned amount. This isn't the case for personal loans, therefore the risk is higher.
Another way to think on it for you. You can get a decent return investing in property and/or the stock market. Personal loans aren't likely to give you the same risk/return as those. You're not going to be able to compete with the banks. Your opportunity cost for your money is going to run much higher than the banks can borrow from the reserve.
Best case scenario, you're paid back and your money is worth less (in real dollars) than you started with.
Thanks for the insight. That is a jackpot on reading between the (my) line.
mrkorrupt that you?
Hire bikies to collect the debt.
Don't do it. I've never seen it come out well. Especially when large sums are involved.
Somehow you're the bad guy when you're asking to be paid back.
If the person doesn't pay you back, it's extremely hard to get the money back even if you have the lawyer to draft a contract before lending the money.
A daughter is not returning money she borrow from her mother. What is the odd your friend not paying you back?
You're better off investing it on black at the casino. If you win, you've doubled your money, if you lose, you've still got your friend / family.
Conversely, you loan it to your friend / family, what's the best outcome, you're at even money and still have friend, worse outcome you lose money and friend.
Go with option A 😉
I had a mate who was in dire need of money for his business. He didn't ask for the money, but I offered the money to buy a shareholding of his company. It was a significant amount.
So we both got what we wanted, and now the company is 25% mine by law.
This is a mate who I've known well for about 40 years. And the reason for his need for cash was beyond his control and was not because the business was losing money. I wouldn't have been comfortable just loaning him the money, because the risk/reward ratio is way too low. But with a 25% stake in the company the risk is still the same, but the (potential) rewards are much higher.
So is there some way you can "own" something of theirs with the money? Preferably something that can give you a decent return like I got.
NO, NO AND F BEEFING NOOOOO
If he's a friend don't do you might lose the friend when you ask the money back, if he isn't a friend don't do it you might lose the money, if it's a relative don't do it see first option.
People cut each other out of their lives over avoiding paying back $5. The more you give the more you'll have to be a debt collector, you're looking at dozens of hours in total of debt collecting depending how much money it is. And you need to stay on top of it too, if you lapse with your reminders and collecting then for some reason they feel like they don't have to pay at all anymore.
Yep and after you play debt collector many times, it's awkward to keep trying and suck blood out of the stone.
Ask them to go to a bank and apply for a business loan, offer to help them pay interest for a fixed amount of time with a promise for them to pay you back later
You need to get a contract written up,with payment terms and timeframes.
You may lose a friend, but you'll keep your money.
If you lend without a contract you'll lose your friend and your money.
Only ever lend money in quantity's that you don't care if you don't get it back.
Read this thread and you might want to reconsider giving money away. https://www.ozbargain.com.au/node/586707
A few dollars sure… Go ahead and lend it… Anymore that will affect how u go about ur normal life.. DON'T DO IT! no matter what relationship u have with that person.
If you have too many friends and are bored, you could lend them all money and just see what happens. Thin the herd a bit.
I wouldn't do it.
That said perhaps the safest way to help out your family is to figure out exactly what they need, purchase it in your name then have them slowly pay it back to you. I'd never give straight cash over and expect for it to be repaid.
For example, if your family member needed $$$ for a house, firstly make them give you evidence of their current financial situation and ascertain if they have the ability to repay you as well as the mortgage on a house. If all looks good, you purchase the house and they pay the mortgage repayments as well as pay you for your loan. Once paid off you transfer the house into their name. If they fail to make payments, sell the house.
Actually, some people have trust. When you loan them money and you can’t touch whatever their properties etc in trust!
when it comes to money, even honourable ex wives, and sons may take up to $250,000 and then walk away, pretending….
There is no such thing as an honourable ex wife.
I understand that Warren Buffet refused to lend his son a modest amount once. He had to go to the bank and argue it’s merits like anyone else.
Never works out well. If you can afford to give it, give it. If not, don’t.
Has ruined so many relationships.Tldr. Never mix business & pleasure…
Never lend money to friends/family unless you can afford to lose both.
'We are talking about tens of thousand to hundreds thousand'
Don't do it. You'll end up not being friends any. I've seen it happen before. Just tell them to go to the bank.
Money and girlfriend/wife you don't lend to.
Even worse when it is "tens of thousands to hundreds of thousands".
No matter all the precautions you take, signatures, lawyer, etc. If sh1t hit the fan you will take ages to see your money back IF only IF you manage to have it back, without mentioning receiving it in small non-sense payments.Fun fact, I just read a piece of news this week where the mother gave her daughter and husband a huge amount of money, 150k if I am not mistaken. After they got their hand into the money, they stopped talking with her and disappeared.
Now she put a lawsuit on them!!The more you lend, the bigger it will be your headache.
My manager used to tell me "if you wanna know someone, give power and money to the person".go ahead, its a life lesson, you are paying the tuition, make sure you enjoy it.
My experience
I lent 300k on a contract for 1 year for a development.
That went wrong so I've not received any re payment.
ended up taking out a caveat on the house.
3 years later went to solicitor and started bankruptcy proceedings
Settled with a new contract and received my 1st interest payment. costs ~12k
My thoughts
Do not lend because you don't have the same protections as a financial institution.
if he defaults it will cost you, without guaranty that you'll get your money back.
Only semi secure way is to have a caveat against house or property.
There are legal loopholes if the house is his family's residence especially if he has kids.
DO NOT DO IT.
Lending is all about security.
How do you securitise the loan? e.g. a bank will take a house, or a car, or some other asset.
What are they offering up? Can you have a certain expensive item in your possession, either a piece of jewellery or maybe a claim on the asset they are trying to buy with the money.
In short, better to not do it. Just make it a smaller amount, make it a gift, and they can go get finance from a bank instead.
Not real, but you asked for the best way, here is what I think the best way is: forget about contact fees, lawyer fees, court fees, etc. Imagine in a country, everyone is using electronic currency and there is only one lifetime account per person, then any money lendings via such system are recorded and you will receive repayments automatically.
Some country is heading to that direction, we will see.😄
If someone wants to borrow money then there is no end to the available options. It's only a question of cost, from 2%pa to 10% per month, depending on how credit worthy the borrower is.
If you lend money to family or friends then consider it a gift.
Look, I lent $3 to a mate in 2009, and guess what, I still haven't got them back.
Could it be like that episode of something I watched recently, where they actually did pay you back but you forgot?
Ralph Cifaretto : [refusing to loan Artie money after he asked for it] I hate to do it, Artie. But I think I'm going to pass.
Artie Bucco : Why not?
Ralph Cifaretto : Cause if you don't pay me back, I ain't gonna be able to hurt ya.
Indians here.
I lent some money (~30K AUD) to brother once to buy the land he was allotted. He has paid a deposit but could not come up with the remainder by deadline. The expectation was to receive the land and then immediately sell it and pay the creditors. I took the money out of my term deposits which were paying me 11.5 % and this was all the money I had in deposits.
It took me like 5 years to get money back. As for the small profit, my mother took it (some long story). I did get most of it back but no one in my family is getting more than 2000 AUD anymore.
Why didn't you just jointly invest 30k into the property instead? You'd have automatically got your money back when it sold, or if it didn't sell then your money would be safe in your tiny share of the property at least. Family members shouldn't be lending each other money, they should be jointly investing money to earn new money for everyone involved. If a cabal of investors can buy 36,000 PS5s to buy on launch and sell on for double their investment, then family members could pool their money and do that too, each receiving back profits proportional to their investment. Probably would want it all managed or bound by a third party or standard agreement.
It's probably a cultural thing. Not uncommon for families in Asian culture to lend money to each other. You are kind of obliged to say yes to family. A lot of the time it ends the same way no matter which culture.
Correct!
Well the money was supposed to come back after few weeks anyway and the booking was in brother's name . After all my mother called me for this. If I did not send the money over then my brother would have lost the 4000 AUD deposit and maybe my wife would be blamed for all this.
My mother provided the rest and the total he spent on that plot of land was ~48,000. He did make some profit 5 years later. The plot sold for AUD 100,000 after 5 years.
Answering this below as reply to Hunter14
I think Bill summed it up nicely…
“Neither a borrower nor a lender be, For loan oft loses both itself and friend...”(Hamlet, Act-I, Scene-III, Lines 75-76)
I have lent 50k to family and 5k to a friend and got it back with interest. I put it on a text so no confusion but didn't get a lawyer.
They were good for it and it was a temporary cash flow issue
You've got honest friends and family. Rare to have one, let alone both. Consider yourself very fortunate.
Does this person own property? If so can you place a charge on the property?
if you care about your friendship, they will find a way, they always do
NO. There's NO FREE way.
The only thing FREE in lending money to a friend is them walking away after taking the money off you.I have heard of small private lenders making 10-20% on these sort of loans. It is apparently a lot less stringent (financial regulations slim) than lending to businesses and people are currently making a killing doing it.
From my understanding they get the title deeds in hand before dishing any money, caveat on property, listed mortgagee on title - preferably first.
I assume a financial/legal document to go with. If they breach covenants of loan then they issue an order, if that that isn't met they sell the property (Which is why i believe they probably do not lend if the property has another 1st mortgagee on title).
If it is a business venture obviously speak with an accountant and specialized lawyer in this field.
Business is one thing - Don't lend money to family unless your prepared to loose it all.
Only lend to someone you trust, although sadly you can't always trust your own family.
I don't think you should lend directly to them. Nor should you. They probably won't pay you any interest, so there's nothing in it for you, and you lose the interest that the bank would have given you. Go through a financial institution so that they bear all the risk, though they will also take your interest (not that the borrower would have given you any had you lent directly to them).
What do they want 10k-100k for?
It matters.
For example, if they are paying off debt don't do it…. even if it is school fees debt. It's debt.
If it's for a deposit for a house ask to get a stake in it; and see what happens.
If your paying towards a house deposit, then your name should be on the title. You get a solid return when it sells too.
Bank's lend money securely every day. So can you.
Legal contract written by a solicitor, with security… property is best.
They put a caveat on the property with you as a LEGAL interest. The property cannot be sold until that caveat is cleared. The only way its cleared is at settlement, with all parties knowing exactly who's getting what. Just like a bank. Insurance on that property must also state you are a interested party. So you're covered that way too.
If you are lending potentially "hundreds of thousands of dollars", that's the only way to do it.
And its all at their cost.
Google something called a promissory note.
I wouldn't lend to someone unless I have complete trust in them and so far have been burnt zero times and given large sums. It helps having a tight knit circle of friends who share the same morals and ethics as yourself. And I can borrow from numerous friends and they'd do the same, all just a phone call away, no reason needed.
Can you post the best answer you found? I'd be interested to hear what you came up with.
If you mean "while still maintaining a healthy relationship", then no.
If you don't care about the relationship, then still no, but debt collectors can do wonders.
The pound of flesh which I demand of him is dearly bought; t'is mine and I will have it
Wow I must be the only person with good experiences lending money. Every person I've lent money to I've gotten back, I always try to help when I can and expect the same from my friends if I ever needed it. The most I lent was a few thousand and the person I gave it to paid interest by their own request as incentive.
Lend it if you are aware you may not get it back and if it's significant get a contract made up that you'll be able to take assets if not paid. It sounds like you don't really know this person well though so why bother?
Loaned $5k to a mate, took a year to pay back, loaned $4k to a family member, nearly ripped family apart. Just don’t do it.
Money is an evil thing and helping family is a big mistake. There’s probably a reason they need the funds, and they should have set themselves up better on life.
Nah, dont do it. I lent money to someone before and never got it back
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Think of some sort of reliable system that enables ultra-micro-banks. Just like what Uber and AirBNB did for Taxi and Hotels.