Lending money to family member

I'm going to start by saying I know nothing about finance, but I am trying to learn.

My sister has just bought a house and has asked to borrow 120k from me (I have about 200k resting in a high interest bank account). I have no kids or debt, so am able to lend her the money. She and her husband have high paying jobs and have assured me that they can repay me within the year (with 2% interest on the loan).

My sister told me that she has 300k in EFTs, which she can sell to pay the deposit, but would prefer that I lend her the money. This has made me suspicious that perhaps she is trying to take advantage of my generosity by offering me a rate that is lower than what I would make either investing in a high interest account or in shares (I'm thinking about investing myself). My family are pressuring me to lend her the money as she has two young children to support. I want to help but I also think it should be reasonable.

Comments

  • +298

    Lending large amounts to family is never a good idea, also how is it your problem she has two young kids to support ??

    Remember it's just a gift until it's all paid back

    • +34

      In fairness, I can see how a family member would want to help & support nieces and nephews, siblings, etc. Our family is very much the same. However, the mindset you have expressed in your second paragraph is pretty much it. See the money off as a gift, not as a loan. If it comes back to you later, great. If it doesn't, great; your gift was appreciated. Unless you can see it this way, don't part with it.

      • +24

        the OP worst mistake is letting his family or even friends maybe that he got lots of money sitting around.

        If he hadn't told anyone, no one would ask to borrow his money.

        Pretending to be someone that has no money is the best thing, people will leave you alone.

        Money is always the source of any problems.

        • +1

          Ah yes, that uncle that asks the gossip queen to borrow money - strategically ;)

      • I third these opinions. If you "loan" ANYTHING, do so with the intention of never seeing it again, or don't do it.

        Also, no matter how much you "learn" about finance, you're still going to be an amateur. There are people that do finance and financial planning for a living. Perhaps you should track one down, because you have a lot of cash sitting there doing not much for you. At the very least you should be offsetting tax by making contributions to super - but don't listen to me. Get proper advice.

    • -115

      Lending large amounts to family is never a good idea

      I think this says a heck of a lot more about your family than anything else.

      • +47

        Hmm all my upvotes would tend to disagree with you buddy…

        • -78

          This is Ozbargain buddy, where tall poppy syndrome is more common than the cold.

          Lending money to family members is a part of the many succesful (wealth wise) cultures in the world. Having been fortunate enough to be exposed to such cultures throughout my childhood, i have seen an incredible amount of people build significant wealth on the back of borrowing money from family members. It is actually something that i have seen bring far more families together than vise versa.

          The bank of mum and dad is literally in the top 10 lenders in Australia - the practice is commonplace, just less so for those trawling bargain forums. So, unlike you, i can back up my comment with quantitative measures outside of upvotes.

          • +19

            @bman20: Sure buddy, thanks I guess

            • -62

              @solidussnake: May you have a stronger family in your next life, buddy.

              • +32

                @bman20: I have a great family, maybe stick your nose in someone elses life now thanks 👍

                • -51

                  @solidussnake: A family you can't trust or back is a strange idea of a great family, to each their own. Glad to know mine have my back and they're glad i have theirs.

                  I am passing judgement because you felt entitled to do so with OP by telling them lending money to family is a mistake. You offered up an opinion, should be prepared to have the light shun back the other way.

                  I know many people that have lent significant sums to family members and it is a beautiful thing. OP knows their family, they are not uncomfortable with their sisters ability to pay them back yet you have tried to disparage OP's sister by saying that it is a mistake. OP just wants to know if they are getting a raw deal yet you are offering an opinion on something you simply cannot assess. OP knows their sister, OP should trust their judgement.

                  When the ninth largest lender in the country is family, its hard to wrap your head around any iditotic broad-brush rule that its never a good idea to lend to family. I am sorry that you have not had this opportunity in your life!

                  • +5

                    @bman20: JV is that you ?? guess there's trolls in every forum that continues to rant and be sarcastic and carry on 😂🤦‍♂️ thanks for the laugh

                  • +2

                    @bman20: It's sad that you judge the value of a family member by how much money they are willing to lend you.

                    Sad

          • @bman20: Ah of course, you get yourself a small loan and make it big in the world

            • -6

              @smartazz104: Quite literally. i am very unashamed to admit that i have benefitted significantly from 'loans' from my family (parents). In fact, I am aware of how priviliged i am to have access to this. My relationship with those who i have had this assistance from has never been stronger.

              25% of SME loans are believed to come from family members and the bank of mum and dad is the 9th largest lender in Australia. It is commonplace to borrow from family in Australia. All the folks who are saying mixing money and family is always a bad idea are living in an alternate reality.

              • +17

                @bman20: You're the one in an alternate reality though. The number of things that can go wrong for the bank of mum and dad is astounding and in some instances may be a form of elder abuse. The s*** people pull on their own family is disgusting.

                Its been the subject of a number of cases and legal studies (e.g. Commercial Bank of Australia Ltd v Amadio - son put mum and dad's house on the line for his building business, taking advantage of their lack of English and withheld key info), where one's relatives are taken advantage of through a handshake agreement and the party handing over money / assets feel some obligation / responsibility / fear something bad might happen (e.g losing access to the grandkids) and don't think it through.

                It's not good to mix family and business / money and things often go wrong but aren't reported because the party who is copping the loss isn't taking any action, again because "family". For smaller amounts of disposible cash that a lender can afford to lose (disposible being relative to the net worth of said individual) sure, go for it but don't expect it to be returned in kind. For large amounts that are certainly not disposible, I would suggest drawing up a written agreement on the terms of the loan including the interest and repayment date(s) to avoid the borrower from coming back later to say "I thought it was a gift" (which is pretty common).

              • +3

                @bman20: Doesn't seem to be a lot of love for The Bank of Mum and Dad. Perhaps it is like the rules of Fight Club?

                Bank of Mum and Dad report 2020: Meet Australia’s fifth biggest home loan lender

                and from The Shovel - Mum & Dad Bank to keep interest rates steady at 0%

        • +5

          Borrowing money from parents is one thing. Lending money to siblings always seems to be completely different and more often than not ends up being a gift. I've seen it with multiple friends across many cultures where siblings haven't paid back their loans years down the track.

          • +3

            @Sammyboy: Depends on the sibling, I have lent and lent to sibling and it's always been paid back in good time and without issue, even relatively large sums of money. It depends on the person, if your sibling is a flake, don't lend to them.

            I would also say if you are a flake then don't borrow, but flakes don't know/think they are flakes a lot of the time.

            • @Jackson: There's no guarantee though, and if something bad happens where they can't pay it back you have to choose between maintaining the relationship or trying to get your money back. Family relationships are too important to gamble with (if it is enough money that you wouldn't be happy just writing it off as a gift).

              • @Quantumcat: If they aren't a flake and they truly hit an issue and can't pay it back, you would be fine to write it off. If your sibling suddenly got cancer and was paying for some expensive treatment, you'd just give them the money anyway. There's scenarios where all this stuff makes perfect sense and there's one's that don't. People do irrational things all the time, if they bought a new car instead of paying you back you find out more about them and if they really respect and care for you the way you do them.

                • +1

                  @Jackson: Well that's why people are saying don't lend the money unless you can afford to write it off as a gift

                  • @Quantumcat: What I am saying is depending on the need you would spend it and write it off even if you can't afford it

              • -1

                @Quantumcat: If you don't feel comfortable lending money to your own bloodline then I doubt there's much of a relationship to preserve anyway. The selfish attitude of Ozbargain never fails to astound me. I would walk the path of death for my family, I know they would do the same for me. What the hell is money if you don't have family? Sounds like a disgusting, isolated life where you don't care about anyone and ultimately die alone.

                Ask yourself who is going to bury you when you die. Or who will look after you if you suffered a serious accident? Oh the government right? Yeah right. Everyone isolates their family until they end up in need and resort to relying on the taxpayer.

                • @SlavOz: The whole point is that the relationship is what makes it a bad idea. If it is a friend that you don't mind losing, then you are able to press them to get your money back and risk upsetting them and maybe lose them as a friend in the process. But with family you don't want to hurt that relationship, so your only choice is to treat it as a gift. If you can't afford to have it be a gift then you don't want to lend it in the first place.

                  • -2

                    @Quantumcat:

                    But with family you don't want to hurt that relationship

                    Like I said, if your family member doesn't want to pay you back (or you have some reason to believe they won't pay you back), that relationship is already tarnished anyway. I personally would not regret ruining such a relationship.

                    Yes I agree, if you can't afford to lose the money, you probably can't afford to lend it either. But if you are in a position to lend a family member money, there's really no reason not to.

                    • @SlavOz: You're out…

                      How long were you in ICU with covid?

        • -2

          Hmm all my upvotes would tend to disagree with you buddy…

          So what?
          Popular opinion thought Earth was the center of the universe, was flat and Witches were real.
          What shit logic to use as a point of argument

          • -4

            @Blitzfx: It's all good mate I really appreciate your valued opinion on it, touchy/butthurt subject for some communities it seems

            • -2

              @solidussnake: Nothing to do with your racism bias against the Asian community.

              All to do with assuming because everyone else around you agrees, doesn't make it right.

              -
              lol nice edit from "Asian communities" to "some communities". Stay racist

              • +1

                @Blitzfx: How's saying Asian communitys racist 🤦‍♂️ I knew it would upset the snowflakes so I changed it

                Stay special

                • -3

                  @solidussnake: Because race nor community has anything to do with using logic that is essentially saying 1+1 = 9999, so absolutely no reason to even bring up race
                  "hey these 5 guys said trees are made of metal so it must be true!"

                • -2

                  @solidussnake: You should take your own advice.

          • @Blitzfx:

            Popular opinion thought Earth was the center of the universe

            It was actually a very, very small minority that thought that…

            The vast majority didn't know or care what the universe was in those days.

      • +9

        I guess it says a lot about my family and the families of everyone I know really. The only time I’ve seen family lending go “well” is the bank of dad type of lending where the loan is more of a gift than a loan.

        • +5

          I think it depends on the family. Only the people involved will really know if its a good idea or not. I borrowed 60k from my FIL. I promised to pay it back and I did, and I've leant money to my mum and my sister, and they also paid it back.

          Everyone is different.

          • +1

            @dmcneice:

            I borrowed 60k from my father in law

            Or did your wife borrow 60k?

            • @Jackson: Well my wife doesn't work, so I was the only one who could pay it back.

              • +1

                @dmcneice: Still, it's a parent loaning a child, so matches the mentioned case.

    • +6

      I have only one thing to say "No Good Deed Goes Unpunished" Decesion is yours @decisions2526

    • +18

      Work through these options

      A) Don't do it

      B) If you must do it do it with a contract and a rate that is expressed in that contract as being higher than market rates due to the risk involved, that it is a business like undertaking and that a return is sought.

      C) When they complain that the rate is a rip off then suggest they get a better deal at a bank. Banks are pretty generous lenders and should give anyone with decent credit a go. They are also set up to seek collection in a business like way without ruining your Christmas ever after.

      D) If the bank knocks them back refer again to point A.

      • +3

        A) Don't do it.
        B) Don't do it.
        C) Don't do it.
        D) Don't do it.

    • +63

      The fact that she has $300k in EFTs means that she doesn't need the money! How rude, tell her to cash out and pay for her own life. It's so irresponsible to get family members to front you money so that you can invest all your money in investments that may go up.

      I'd love nothing more than to have someone front me $700k so that I can invest this in TrueAUD and stake it on CryptoDotCom at 12% interest for a cool guaranteed income of $84,000/year.

      • +5

        I agree. doesn't matter if the dude has 2 million sitting in an account. pay your own way freeloader.

      • +9

        I agree supersabroso, if she has 300k tied up then she can cash out what she needs and pay for her own things. Why is she even asking? Sounds like she's being greedy to me

      • +2

        Agreed, it doesnt make sense that she already has the money but prefers to borrow it from you. If she's already got the money what's the problem?

    • +5

      if you are going to do it, make it legal, with all the details like amounts, due dates and interest as well as what actions will be taken if they default their payments, if those actions are harsh, it can give you some light on their intentions of paying you back on time if at all

    • +9

      Never lend money you can't afford to lose.

    • +3

      Remember it's just a gift until it's all paid back

      ^^ THIS

      If things go sour, and the family member refuses to pay back the money or stops communicating with you, you are then SOL.
      Unless, you have drawn up a legally enforceable contract. She might be offended by that.

    • +2

      Hi, for amounts like this, unless you can afford to lose it I would ask for security. Ideally you would be a mortgage holder and that way assuming the property has a value ( at least 20% ) higher than the loan. I am not sure if the lender would allow this though.
      2% especially on a no security loan is silly. It's not worth it. Minimum 3.2 with security at least 5% without and even that's mighty generous.

    • 100% I can't agree more.

      TLDR: No, you don't give any money without doing a proper risk assessment and making a legally binding contract.

      OP, firstly, I am not judging you or wishing you anything. But I know many young men/women from South East Asian background, who worked hard for many years and saved up that kind of money - 200-300k by living a vey modest life-style and then lost all their hard-earned money by lending to relatives or friends, because it's really hard to prove their case later in a court. So I would advice not to give any money at all, if possible because I know many of these cases, the relatives (beneficiaries) made up some terrible stories and started acting like real enemies after the money transaction happened. Right now, you may think that the people are nice, supportive, blood-relations etc. etc. but it doesn't take a few hours for a perfectly normal human being to become hostile and start arguments/attacks when it comes to money matters. So, if you are worried about your friendship or relationship, just remember that you don't deserve such "friends/relatives" who will be with you, only if you can help them financially. if it is too hard to say "no", make up a new investment story - buying a regional land that you just found and couldn't afford to lose or even a cyber attack story. In any case, you just have to endure the stress of a few hours of "story-telling" vs. a lifetime of stress for losing your money and friendship over a stupid decision that you made in 2022. Good Luck my friend!

  • +42

    No.

    If you really must, you should potentially be be getting more than 2%. You should be getting a return commensurate with that which she would be getting on her ETFs.

    Perhaps the fairest way would be that over a set period of time (1 year) that you would receive your $120k back, plus 2% p.a. interest OR the same % p.a. return which her ETFs have returned should, whichever is the higher.

    But you all need to consider the outcomes of a worst case scenario. They both lose their jobs and need to cash in the ETFs and any other savings they have to cover the mortgage and any other debts to other lenders/tax liabilities etc…

    Where does that leave you? Probably lowest on the priority list and at risk of not seeing your money for much longer than anticipated, if at all..

    Whatever you do, make sure there is some legal agreement signed by both parties.

  • +116

    Just DO NOT !

    I've seen a number of family and friend relationships irreparably damaged due to lending of money, going into business together and the business failing, etc and it's very sad and could have been totally avoidable.

    Your sister has the means so there is no reason why you need to lend her the money.

    • -11

      Going in to business with your family members is worlds apart from lending money to them.

      • +4

        Not really - it's down to the way it is done like when an elderly parent is pressured to lend money to start up their adult children's business and is named as an owner. The business failed within 6 months and the parent ended up losing their home.

        Or going into business with the in-laws as a silent partner - loss was limited in this case when the business failed however the relationship totally broke down.

        In all the instances, it was the coercion element due to being family members with financial benefits that stands out.

        • -10

          What you are describing are terrible people and the exception as opposed to the norm.

          If OP's sister is reckless then obviously that changes things however there is no reason to assume they are, in fact it would appear they are conservative given the savings they have. OP clearly trusts their sisters character which is lovely to see and unlike most of the commenters here.

          I would gladly lend 50% of my liquid wealth to my sibling, i would hardly flinch. Not all families are the same.

          • +1

            @bman20:

            OP clearly trusts their sisters character

            Where did you get that from? OP states that he is

            suspicious that perhaps she is trying to take advantage of my generosity by offering me a rate that is lower than what I would make either investing in a high interest account or in shares (I'm thinking about investing myself).

            I agree with you that

            Not all families are the same.

            • -5

              @kajke: OP is confused because they are very unsure about finance. It isn't clear that OP's sister is financially savvy either.

              I am basing it on the fact that OP sounds like they were/are about to pull the trigger and lend their sister 60% of all their cash, that alone tells me they trust their character as i cant see how you would get that far if you didnt.

              • +8

                @bman20:

                It isn't clear that OP's sister is financially savvy either

                I think investing $300k in EFTs would qualify as being financially savvy and also not wanting to use these funds for your own home rather using your parents to coerce your brother to give you his hard earned savings instead is savvy af!

                Does this meet your definition of terrible people as you alluded to in your previous post?

                • -2

                  @kajke: You dont need to be savvy to know the difference between the return one can get on an *ETF vs the interest you pay on a mortgage.

                  The fact is OP clearly has no interest in pursuing that as an investment so I dont see why it is in any way nefarious for their sister to be open about wanting to gain an edge that way. As long as OP get's their principal and interest back, who cares what the sisters motivation is. the question is whether OP trusts that the sister will pay it back and it seems like they do. Its like people are looking at this as OP's sisters gain is OP's loss. Its not at all, OP has their money sitting in a bank account. It is losing value by the day and they arent going to get 2% interest anywhere else, even in a term deposit.

                  • +5

                    @bman20: You're not following and keep inventing 'facts' and I don't want to continue correcting you.

                    Enjoy the rest of your day!

                • +6

                  @kajke: Yes.

                  I've lent money to family members down on their luck to get them back on their feet, and without hesitation. But I always understood I might not see the money back. I particularly wouldn't expect to see it back if that sibling had plenty of money tucked away but preferred to use mine - frankly I reckon that sister has a hide.

                  It puts you in mind of the old banker's saying "never lend money to someone who needs it".

              • +1

                @bman20: Oh Bman you should get off ozbargain for a couple days, your biased opinion and countless hundreds of negs should be a great indicator to go outside and touch some grass

                • @solidussnake: lols. It may come as a great shock but, unlike you, my self worth is not derived from upvotes/downvotes on a bargain forum. Wooohoooo, you are being cheered on by a hundred people that have never had the fortune of benefitting from a sizable loan from their family. Take pride in that, champ.

                  • @bman20: I have had the benefit of a significant family loan that helped me save countless tens of thousands in LMI and CGT (for not having to sell my own shares early), not to mention the countless tens of thousands I earnt on being able to keep those shares much longer. And I still totally agree that lending any money to any person should be seen as a gift, that is just hopefully returned. Anything can happen, intentionally or otherwise - that could mean the loaned funds are never seen again.

    • I agree. I am the victim here. I did got a house with family member with a deal that we will sell it in 2 years. I funded more and now we are stuck. Fam member does not want to sell it. Worst decision of my life I'd say.

      • Why are you stuck?

        • It is suppose to go smooth now it is stuck because the family member doesn't want to sell at the moment and all members are like yes support. Also I did the entire work of planning and get builder and all.

  • +111

    Hell no, she should sell her EFTs. Also if they were in good enough financial position to pay you back, the bank would lend them the money.

    • +4

      My guess is the bank HAS lent her the money. She has bought a house.
      I thought the loan is to pay the bank - not the seller.
      So the question is, why is she willing to pay 2% interest on the loan when that's about the same rate she should be paying the bank?

      • +1

        I guess the difference is 2% per annum vs 2% until whenever she can pay OP back

        • -2

          Or 2% per month lol

      • +5

        I read it as the house has been bought, the bank has approved the loan now the sister has to pay the deposit to the bank for settlement. The loan would've been approved based on the 300k ETFs available for the deposit but the sister doesn't want to sell these, instead using OPs funds for the deposit, I guess instead of paying CGT on their investment.

        • +1

          Yes, there are a few reasons to not want to sell ETF's at the moment. Firstly, the 50% CGT discount if you hold them for more than 12 months, we don't know when she bought them. Secondly, the share market is down quite a lot at the moment; it's coming off the highs of the cash injections through covid, and there's a lot of concern about Russia (and to some extent China).

          • +6

            @macrocephalic: if we ignore possible CGT, if she sold the ETFs to pay for the house, turned around and asked OP for 120k to invest in shares for 2% per annum interest, would that pass the pub test?

          • +1

            @macrocephalic: And today's dive because of Mr Putin doesn't help.

            • @xylarr: Yeah, if the OP has risk tolerance then next week is probably a good time to invest their own money.

              • +1

                @macrocephalic: If they're not saving for a house deposit themselves then I would actually DCA ~20k in every three weeks for the next half a year or so.

                If OP is looking to buy a house in the near future (sooner than the investment time frame for ETFs, which might be way they arent invested) then its an even stronger reason not to lend the money because the ETFs might not recover in time and the sister might not want to liquidate to pay her back.

        • Yeah, I guess that's a possibility - but we would then normally be talking about a fairly narrow window of time between the finance going unconditional and settlement on the house…

    • -1

      its ETFs (exchanged traded funds) not EFT (Electronic Fund Transfer), EFT is EFTPOS for paying stuff with card (credit/debit).

  • +28

    Yeah stuff that. I mean, why even discuss your wealth with family. I like to have mine think I'm doing enough to survive but no more than that. You should enjoy your own fortune.

    • +3

      I'm like that with friends, too!

    • +6

      yep never tell your family and friends exactly how much money/investments you have, just tell them you're getting by or comfortable.
      You should still discuss pros and cons of different investments or financial strategies if you want to educate them but never with true amounts.

    • -10

      This is so sad!

      • +7

        You have made it abundantly clear that this post is not for you. Do yourself a favour and vacate.

        • -1

          The way some of you simple folks are so passionate about something yet so hell bent on championing an echo chamber is fascinating. To each their own. Maybe y'all can find a cheap mirror on this site and save some time by just asking questions to it.

  • +4

    2% ?
    Ask for 7 % for the added risk with her paying legal costs for the contract of her property equity acting as full security .

    • +1

      Sounds like the money is for a home deposit, so the bank gets security over the house.

  • +18

    do it

    also I'm a long lost br0 can you send me 20k for a deposit for a car
    high yield AMG Merc

    nothing but the best for my kids

  • +47

    Just in case you need another vote for hell no.
    Also it’s a bit toxic of other family members to pressure you into helping her, just tell them to help her themselves. People shouldn’t be asking for help if they have 300k worth of EFT laying around.

  • +14

    No. Just, no.

    If you must, see a lawyer and get a proper contract drawn up….

    IANAL, but if I were even to consider lending that sort of cash to someone for a house, I'd want a stake, which means a formal Tenants in Common agreement.

    If your sister doesn't agree… to Tenants in Common with a buyout option of your stake + 2%, walk away.

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