Lending money to family member

Ldecisions2526 on 23/02/2022 - 19:54
Last edited 23/02/2022 - 19:56

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.

Financial

Comments

    • hydravirgo on 24/02/2022 - 11:35
      +1

      Can you not still get stuck if they don't sell the house for 10+ years and don't buy you out?

      • bobbieb on 24/02/2022 - 18:27
        +3

        I'd be looking for two things from the lawyer… a proper, airtight Tenants in Common agreement, and a loan agreement.

        The fixed term loan agreement means they need to pay the money back in a fixed period, or you get to collect whether they cooperate or not.

        The Tenants in Common agreement gives you a legal claim a fixed percentage of the property. I'd want the agreement to specifically make reference to the loan agreement with specific clauses allowing me to sell the property in order to reclaim my capital and interest should the loan not be paid.

        Again, IMHO lending to family and friends is a bad idea…. bit if you must, get a lawyer and a good one at that.

  • yellowfever on 23/02/2022 - 20:21
    +25

    Nah
    She cashed up and looking for opportunities by digging into her own sisters funds to benefit herself and her family.
    She will get by fine since she already bought the house and already has her own funding.

    Keep that $200K. Why others know you have $200k is beyond me. You shouldn't be telling them that.

  • dizzle on 23/02/2022 - 20:23
    +14

    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.

    Of course she'd prefer to use someone elses money. That way she continues to get interest, but the person lending to her doesn't.

    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).

    If she can afford to pay back that much, she can afford to get a home loan from a bank instead. If she can't get a loan, then I wouldn't expect she could repay you what she says.

    Sounds like a lot of entitlement on her side, and I'd use those two arguements to explain to the family - Not that you should need to explain.

    • UNO on 24/02/2022 - 07:55
      +2

      It sounds to me like the OP should be putting their 200k in EFTs to get a better return.

      • stumo on 24/02/2022 - 16:19
        +2

        ETFs would be even better.

  • toomuchdogfur on 23/02/2022 - 20:25
    +51

    No.

    She and her husband have high paying jobs and have assured me that they can repay me within the year.

    Let us phrase it another way: Despite she and her husband having high paying jobs, they somehow haven't been able to save a deposit on their own or they have such intense FOMO that they are rushing into a house purchase instead of saving.

    Also if they're already going above their means to get this mortgage, are you certain they can pay back $10,000 a month on top of mortgage repayments?

    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.

    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.

    Straight up, this is an unreasonable and possibly toxic mindset.

    Your sister has the means to support themselves. This is not a life or death situation. You should not be made to feel guilty for not supporting their FOMO.

    I say this as someone who is lucky enough to have family lend me money to help with a mortgage. What did I do? I saved until I had enough to get the mortgage on my own dime, left all their money in an offset account and told my family that if they ever want it back then I send it back, no questions asked. I do not touch that money - it is theirs.

    You don't f—k around with money between friends or family. It is not worth the potential resentment and heartbreak should things go south. Your family pressuring you to do this is shortsighted, to say the least.

    • trapper on 24/02/2022 - 17:26
      +3

      Your sister has the means to support themselves. This is not a life or death situation. You should not be made to feel guilty for not supporting their FOMO.

      Yes

  • Phlume on 23/02/2022 - 20:25
    +8

    If you lend that money to your family members, may as well to consider it a gift and be prepared to never see that money again to avoid yourself from future emotional pitfalls and disappointment. Most people here would reasonably say no for the reasons above.

  • Tiredman on 23/02/2022 - 20:26
    +18

    God no, no no no no. Only lend money you are ready to flush down the toilet that you won't be stressed about losing.

    The cheek of her to tell you she has $300k in ETF that she doesn't want to sell is a big red flag to say NO.

  • life is suffering on 23/02/2022 - 20:31
    +1

    She is your sister..get a document done if you think she will not give back

  • Traveller107 on 23/02/2022 - 20:35
    +8

    Do NOT do it. The risk doesn't just include you losing the money or your sister taking advantage of you. The biggest risk is it'll ruin your relationship with your sister and other family potentially.
    Any decent person would use their own funds and assets before asking for handouts from family.

  • rektrading on 23/02/2022 - 20:40
    +6

    Lending large amounts of money to family or friends is just like any other business transaction. Don't make it personal.

    Have a lawyer write up a formal lending agreement and let both parties know their responsibilities if they violate the agreement.

  • Look Up on 23/02/2022 - 20:42
    +13

    Glad someone has already reported this troll post.

    For the 1% chance this a real question, read over again what you have asked

    You already know the answer - this is not a matter of financial knowledge, it is about common sense

    • decisions2526 on 23/02/2022 - 20:47
      +16

      I wish I were trolling. My parents are ringing me all the time to ask me when I will be transferring the money and its already creating a bit of a rift.

      Thank you for the advice.

      • kerfuffle on 23/02/2022 - 20:52
        +28

        Tell them to lend the money then 🤷🏻‍♀️

        • decisions2526 on 23/02/2022 - 20:55

          They said they might be able to contribute some, but nearly all of their money is tied up in super.

          • SpotTheOzzie on 23/02/2022 - 23:32
            +49

            @decisions2526: lmao they're money is tied up in super? HAHAHAH

            You're parents think you're an idiot. Stand-up for yourself and stop being a doormat.

            If your family puts you in a position where you'll 'no longer be part of the family' but basically handing over your life's work than they ain't ya family bro.

            • Hangryuman on 24/02/2022 - 12:35
              +3

              @SpotTheOzzie: if the parents want to help, tell them to sign as guarantor for the sister's loan

              that way, when the sister defaults on the loan, the bank repossesses the parent's home

              and the parents become homeless

              suggest that to the parents - that's effectively what they are pushing onto you.

          • abb on 24/02/2022 - 15:51
            +10

            @decisions2526: Tell them your money is tied up in ETFs

          • jaypee06 on 28/02/2022 - 16:18

            @decisions2526: You could use the same excuse.

            Oh my money is tied up in super as well. I maxxed out my concessional contributions and the rest as non-concessional contribution because I thought it was a good time to top up my super given the recent drop in the sharemarket.

      • [Deactivated] on 23/02/2022 - 20:55
        +12

        Tell your parents to pull out equity in their home and lend it to your sister

        • decisions2526 on 23/02/2022 - 20:58
          +3

          I'll suggest it. I get the feeling that they are very much on her side as she has a young family (and I am single with no major responsibilities).

          • [Deactivated] on 23/02/2022 - 21:37
            +39

            @decisions2526: Tell the fam that your investment is no longer liquid as you bought an apartment today and you are indeed married and will be entering this year's MAFS experiment as an intruder couple.

            • Hearthstone on 23/02/2022 - 21:56
              +5

              @[Deactivated]: also you want to try this psychology tactics and your parents may feel relieved afterward and don't pressure you.

              Assume you are a female change the story to male if you want.
              go to your parents house, get them to sit down and said you need them to sit down and hear this as this is very serious.

              Mum and dad, I haven't told you but now it probably a good opportunity to do so, I am dating a guy, he a bit of a drug addict and I been giving him money for drug, give some figure 40-50K or something, I been hidden this from you for a while, also I been sleeping with him and I am expecting a baby. I hope you don't mind me marrying him later this year. Your parents will go wacko then you said well none of that is true so now I don't want to lend my sister 120K because I don't want to have tension in our family is that a better news than the one I just told you?

              They would probably be so relieved and give you a hug

              • [Deactivated] on 23/02/2022 - 22:08
                +2

                @Hearthstone: I like that tactic!

                OP needs to create boundaries.

          • Hearthstone on 23/02/2022 - 21:47
            +1

            @decisions2526: I know how you feel because I been in the same boat about my wife pressuring me to lend to her family siblings
            but I am usually very frank and make it clear about not lending to family.

            I usually just say no and sometimes they find other source but if they are desperate and to keep my wife happy

            I told her I can do a once off and I make it clear I want it back but I already prepare to let it go if they don't so it doesn't create frictions
            both times I got it back 30K and 50K but I still don't like doing it and it usually a No first

            sometimes if it a small amount like under 5K I give it as a gift but I only do it once and not to be repeated

            • derrida derider on 24/02/2022 - 19:44
              +2

              @Hearthstone: Yep, lending - really govong - money to hard up family members is one thing. Giving it to those who already have it is another.

          • dizzle on 23/02/2022 - 22:35
            +3

            @decisions2526: Even then, if your sister has $300k in investments they should use that before you or your parents put yourselves out of pockett

          • Massive Flog on 24/02/2022 - 00:04
            +3

            @decisions2526: And that's not your problem. Your sister sounds entitled. Be sensible: don't do it.

          • ankor on 25/02/2022 - 07:42
            +1

            @decisions2526: But once you are not single and have responsibilities, you will be down 200K and your sister will be up 300K plus your 200K plus everything else.

      • Look Up on 23/02/2022 - 21:05
        +25

        OK I will bite

        You have accumulated $200K in cash savings so even with no financial knowledge, you know how to save and control your spending - all wise attributes

        Fortunately for you, your sister is both financially and psychologically smarter and is graciously offering to teach you an important life lesson

        If you lend her the money, you fail the test and will forever be known as the soft family member who can be easily exploited

        If you do not lend the money, you will level up in independence and reveal the true nature of your family members. Those who keep harassing will be the parasites you will learn to ignore and avoid in the future

        • AndyC1 on 23/02/2022 - 21:26
          +1

          Wrong, got to be positive:

          If you lend her the money, you will have passed her manipulation of the family.

        • RudedogandDweebs on 26/02/2022 - 11:37

          This is the way. Level up option!

      • avoidfullprice on 23/02/2022 - 21:49
        +2

        There was not a question mark used in your post.

        Secondly, grow up. Don't use "my parents are pressuring me" and hide out in an internet forum.

        The terms are bad. 2% (below inflation) and there is no recourse for you to get money back.

        If they can't afford a deposit, then save up.

        take advantage of my generosity

        Generosity is you giving them money. You're gullible the way you portrait yourself, if this is not a troll post.

      • morse on 24/02/2022 - 03:58
        +3

        This is awful! The rift is not your fault, they shouldn’t be putting you in this position. Just say firmly that you’re not going to do it and for your sister and parents not to ask again. You might need to spend some time out from them, which sucks, but like I said, not your fault.

      • popsiee on 24/02/2022 - 09:11
        +3

        Is your sister your parents favourite child ?

        Oops I'm being silly no need to ask hehe :)

      • Tiredman on 24/02/2022 - 10:49
        +1

        What on earth is wrong with your parents. Pardon me.

      • ProlapsedHeinous on 25/02/2022 - 01:15

        tell them to fk off and freeload off someone else.

    • Hearthstone on 23/02/2022 - 21:30
      +10

      I don't think it is a troll, a lot of migrants family tend to do this
      I personally on the request end a lot and I said straight up, I don't lend money and I don't borrow money from family to keep the relationship intact
      I seen friend's family go to war over this, family all fall apart

        • Hearthstone on 23/02/2022 - 22:01
          +5

          probably but I seen a lot from my perspective probably dozen of family I know from Greek to Italian to Chinese

        • 900dollaridoos on 24/02/2022 - 06:54
          +10

          And if you said that about westerners most people would know what you're talking about and be fine with it. Not everything is hate speech ffs.

      • MeesusEff on 23/02/2022 - 22:04
        +5

        I was going to bank on OP being Asian lol, very common to be expected to "help family" despite it not making sense (specially for the golden child, very open as to who the favourites are 😂)

        • Hearthstone on 23/02/2022 - 22:06
          +2

          Most don't believe it or don't understand in some culture you expect to help out
          and it works for some families but it breaking apart just as many, the one that works out usually on gifting term rather than lending term
          or lending without expecting the return

          • SpotTheOzzie on 24/02/2022 - 01:49
            +5

            @Hearthstone: A Korean lady was asking about the relationship I have with my wife and associated family (Chinese). She made a really flat out comment that Asians are more family orientated than my side (white westerners) and I'd struggle to meet the family requirements.

            The irony is when I see ridiculous garbage like this scenario play out. It's like it's drummed into the following generation that they 'owe' their parents and the emotional guilt dumping is acceptable from family for any demand they make.

            There's definitely some cultural things that I've picked up since being with my partner such as the Chinese love to scam the Chinese..and the usual ploy is that 'you're like me' and use race as an emotional ploy to sucker people in.

            We're made to accept everyone's culture, fine, but we can also criticise some abnormal behaviours like the scenario OP is in. There's good / bad in every culture guys, and this is one of those scenarios that should be stamped out.

            • sakurashu on 24/02/2022 - 11:59
              +1

              @SpotTheOzzie: I'm a westerner and imo you do owe your parents - except in OPs scenario it's not for their parents and they don't owe their sister anything

              • tikei on 24/02/2022 - 17:06
                +2

                @sakurashu: No one asked to be born - the parents just decided to pop a life out on their own. I don't think 'owe' is the correct word. I 'appreciate' my parents for not being horrible after the non-requested birth, but I certainly don't feel like I owe them.

                • sakurashu on 25/02/2022 - 09:52
                  +1

                  @tikei: "No asked asked to be born" is one of the dumbest phrases I've ever heard - are you really asking not to be alive? "not being horrible", you mean spending a chunk of their life and money and time to raise you? There are few things in life people give 20 odd years towards, to say you don't owe someone for that is madness. If I have a great friend who supports me like that then of course I owe them at least the same - why do people think they are entitled to 20 years of someone else's best years just because they are the ones who gave birth to them???

                  • tikei on 25/02/2022 - 10:47

                    @sakurashu: Uh, but I never asked to be here. If given the option I'd rather not be here. But what's done is done and it would be too physically painful to undo. Raising one's own children is an obligation. Your example of a friend doing the same cannot apply.

  • JimmyF on 23/02/2022 - 20:47
    +17

    My family are pressuring me to lend her the money as she has two young children to support

    well they have $300k in ETFs they could sell, so its not like they are going to go bust if you don't lend it.

    The rule is NEVER lend money to family or friends you unless you're happy to never see it again.

  • Typical16-bitEnjoyer on 23/02/2022 - 20:48
    +5

    NOOOOOOOOOO
    Dear lord baby jesus do not do it. Tell her to cash in the 300k.

  • InfiniteRegression on 23/02/2022 - 20:48
    +3

    if you must do it, make sure that it is legally documented even with family this will protect your earnings.
    As others have said - any money you lend should be considered a gift until returned.

    • Hearthstone on 23/02/2022 - 21:22
      +6

      this will break family apart when push come to shoves, one sue another, lawyer involves etc..
      best not to lend in the first place

  • holdenmg on 23/02/2022 - 20:52
    +8

    Ask if she will lend you $120K @ 2%

    • tulip99 on 24/02/2022 - 09:07

      Good one! :-)

  • [Deactivated] on 23/02/2022 - 20:57
    +3

    I would ask for 3.5% on a 12mth term. This is cheap for bridging finance

  • AndyC1 on 23/02/2022 - 20:59
    +5

    TROLL POST BY NEWBIE.

  • datafellows on 23/02/2022 - 21:05

    There might be a market correction coming in short term and you might want to have some cash to buy the dip.

    • Stopback on 23/02/2022 - 21:45
      +1

      Buy Facebook. Moderna. And westpac

      • rektrading on 24/02/2022 - 07:14

        Tech and pharma stonks are ok.

        Bank stonks are going nowhere. Stay well away.

  • Hearthstone on 23/02/2022 - 21:19
    +3

    trouble ahead, family will break apart, think carefully
    lending money and family don't mixed unless you give it as a gift or don't expect to get it back

  • Drpepper666 on 23/02/2022 - 21:39
    +3

    Sure why not. What could go wrong.

  • fullmetal on 23/02/2022 - 21:46
    +1

    put your name on the title

  • frondono on 23/02/2022 - 21:56
    +5

    Just say you're looking at EFTs too. But you're looking to time the market as everything has been going down since November.

    • Antikythera on 24/02/2022 - 10:28
      +3

      even better, say you already put 170k into EFTs a month or so ago and there would be tax implications if you took money out now.

      i'm guessing Sister needs the cash for the deposit, so cant get loan for the amount, and wont cash out the EFTs because of tax implications or current paper losses.

      • Krankite on 25/02/2022 - 11:06

        Alternatively you could say it's in a term deposit which would probably be more believable from what I have picked up about OP

  • jv on 23/02/2022 - 22:03
    +7

    I have about 200k resting in a high interest bank account

    Troll post?

    • dufflover on 23/02/2022 - 23:29

      Yeah can you even reach 2% interest on a savings account these days?

      what I would make either investing in a high interest account

      • decisions2526 on 24/02/2022 - 17:49

        I know pretty much nothing about finance which is why this situation scares me.

        • nightfever on 25/02/2022 - 08:41
          +1

          And how is asking ozbargainers for advice will make the situation less scary? 🤔

          Anyways, you don’t need to know how to finance with what you’re asking. You just need to make a decision and own it yourself. It’s your money.

          What if you suddenly need to purchase something expensive for yourself urgently but you’ve loaned majority of your saving to her. Will she be able to transfer back asap? It’s all words, nothing is concrete even if you have a legal contract draws up. Is it really worthy to go down the ugly path when crap really hits the fan? She’s going to tell you she has a family and your parents are going to be in disbelief if you end up taking legal actions against family.

          Please, don’t do it.

  • atris17 on 23/02/2022 - 22:03
    +5

    My Sister Loan me 200K
    For a deposit and renovation for my first home
    It was great investment opportunity also
    I was able to pay her back within 3 Years
    She understand without lending it to me, I would struggle and lose that opportunity.

    How strong is your family bond ?
    Think about her children too ?
    The loan kept me honest and strengthen my relationship with her, and i was determine to pay her back as quickly as possible
    Also get a legal contract, to cover you.

    All the best

    • core101 on 23/02/2022 - 22:44

      The reality is interest rates attract tax, effectively only making half, and usually below CPI rate.
      If she can pay OP back in 3 years it would not be a big loss to interest earnings.

    • morse on 24/02/2022 - 04:02
      +6

      Great that you paid her back, but it doesn’t always work out that way, sometimes peoples circumstances change and they can’t. But even in your case your sister missed out on earnings she could have made through investing that 200k.

    • seenandunseen on 24/02/2022 - 16:53
      +3

      Why should he lend his sister his 200k funds when she has more than him (300k) she can use instead?

  • screensaver on 23/02/2022 - 22:04
    +4

    Say there is more involved than interest. There will be a solicitor fee involved in signing up the contract. Ask if she will pay that. Say you need to get legall advice. I get more than 2% in my property fund,

    • decisions2526 on 24/02/2022 - 17:51
      +2

      My sister is a lawyer, but obviously I will be looking for independent advice. I'm thinking of booking in to see a financial planner.

      • Ziggy28 on 24/02/2022 - 17:53
        +4

        Wonderful… watch her use the law against you when you try to get the money back!

      • smartazz104 on 24/02/2022 - 18:15

        Must not be a very good lawyer if she has to borrow money from family…

        • decisions2526 on 24/02/2022 - 18:36

          She's got a law degree and an MBA. Which is one of the reasons I became suspicious about the request.

      • Krankite on 25/02/2022 - 11:08

        Make sure it is a financial planner you pay for otherwise you are the product not the customer

  • dasher86 on 23/02/2022 - 22:06
    +6

    You should of play it at the start that all of your money is now also tied up in ETFs.

  • AustriaBargain on 23/02/2022 - 22:12
    +9

    Maybe your money should be in ETFs.

    • decisions2526 on 24/02/2022 - 17:52
      +1

      My next post is going to be how should I invest my money (I know pretty much nothing about investing).

      • AustriaBargain on 24/02/2022 - 17:57
        +1

        Just treat it safe. People on OZB talk about their salaries and investments like we are all rich. But 200k is a lot of money, how you invest it now could change your quality of life a lot for your last 15 years alive. And suppose Russia or China decides it can invade Australia 30 years from now and it decides no one is going to step in to stop them, whatever that money has grown into could set you up in a safe country. But not if you buy something now could be worthless by then. Like crypto coins or Tesla shares.

  • screensaver on 23/02/2022 - 22:21
    +4

    You need an iron clad, legal guarantee that you will get your money back,

    • morse on 24/02/2022 - 04:04
      +2

      Unfortunately nothing is iron clad. If the sister is bankrupted OP could ended up losing it all. OP would also have to go through a costly legal battle if it ever came to having to use such a guarantee.

  • RolandWaites on 23/02/2022 - 22:35
    +6

    If she can pay back $120k in a year with interest, why doesn't she just… Wait an extra year and she'll have the money anyway?

  • HeroNoone on 23/02/2022 - 23:02
    +4

    Hey OP, your situation is not that great.

    Scenario 1::::

    Talk to your sister and tell her that you want to invest yourself, as the market is looking good now in your opinion.

    Advise her that of course you can give her a hand in her current situation, but the amount you can afford to lend would be around $30k.

    Scenario 2:

    Just tell your SISTER and PARENTS that you don't want to mix finances with the family. Especially when your sister got $300k in ETF. She can sell it if she really needs money.

    P.s I choose #2

  • ihbh on 23/02/2022 - 23:05
    +2

    Two considerations::

    • Return of your money - if something happens to your sister, will it be returned by the husband. If the stock market crashes, if they lose their high paying jobs, …

    • Return on your money - 2% is very low for such a risky investment on your part.

    You also need to realise that $120k is a very large chunk of your assets. You need to diversify.

    My parents are ringing me all the time to ask me when I will be transferring the money

    No way until you draw up legal documents formalising everything, like you were the bank (security (caveats, etc.), term, interest rate, default rates, etc.). When I was in a similar situation but it was a much smaller % of my assets, a QC drew up loan docs for me (happened to only cost an expensive bottle of champagne). The relative said that's not how family does business but signed the docs.

  • bmerigan on 23/02/2022 - 23:11
    +4

    Hell no. Even more no because they can fund it themselves.
    From the description she would rather use your investment than her own which is dodgy as hell.

  • Pufff on 23/02/2022 - 23:16
    +4

    I've lent to a few of my family before but my families pretty close.

    If you have doubts then you shouldn't.

    Just tell them you are in the market and need it as well even if you don't intend to buy.

    You shouldn't let even family know your savings to begin with.

  • KaTst3R on 23/02/2022 - 23:29
    +11

    Two kid to support but has high paying jobs and 300k in ETFs. Come on. This is a stupid post.

    • decisions2526 on 24/02/2022 - 17:54
      +1

      They bought a 1.6 million dollar house. I'm not privy to any more than that.

      • KaTst3R on 24/02/2022 - 21:58

        They already bought the house. So why do they need the money? It is not that we are critical of your decision. It is your money you can do whatever you want. It is just that the whole story doesnt make a lot of sense to a normal person. This is a very usual situation.

  • AndyC1 on 23/02/2022 - 23:32
    +1

    OP has left the building as getting hammered as expected.

  • pogichinoy on 23/02/2022 - 23:43

    Nope. Big nope.

  • endolphin on 23/02/2022 - 23:54
    +12

    I've done it before, and it was a mistake.

    The agreement was that I would just park $100k in my brother's offset account, and it would never be touched. So imagine my surprise when I called in that loan because I was buying my own house and only $70k was left because he had bought a car.

    In the end, I got it all back. He had to re-mortgage and I had to source the difference elsewhere until that got sorted. But the relationship was irreparably damaged.

    • Stopback on 24/02/2022 - 10:24
      +1

      what time period was the loan?

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