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

  • "She and her husband have high paying jobs and have assured me that they WILL NOT repay me within the year (with 2% interest on the loan)."

  • Just because their situation is comfortable and they're in a position to repay you at the moment doesn't mean they will still be in the same position in one year. One or both could suddenly lose their job, experience mental/physical illness, experience high legal fees/prison time, could end up divorced or (touch wood) pass away.

    You're putting your money into an unknown risk state and as such, you should either reduce the risk (I don't know how) or expect a higher return.

  • If you end up lending her the money, for Christ sake get a legal binding contract. No if, no buts. If she objects, then too bad. Better still, run the other way. This is a recipe for disaster.

  • Big no, unless you want to lose your sister.

    1. She and the husband on a high paying job.
    2. Its a gift until its paid back and consider it that way if you decide to lend.
    3. Unless she's on her last breath - need the monies for hospital or she/any of her family dies, then no.
  • Just tell them you decided to invest in ETF's too

  • +2

    Ask her to allow you to be named on title and see how that goes.

  • +1

    Simple terms NO!!!

    Not when she got that much of money on etfs. If you really must for family pressure, talk to a lawyer and see what your best options are. Some etfs and shares can be transferred to a different person. Whatever you end up doing, get everything in writing and mostly favourable for you.

  • If she needs the money to feed her 2 kids, she certainly doesn't need 300k in ETFs. She can sell them and buy them again when she can afford them in a year's time. ETFs aren't going anywhere. If she says her ETFs will be worth x% more in a years time then you can ask her for X% - 1% in interest rate. Everyone wins.

  • +1

    yeahh, nahhh

  • +1

    1 year will become 2, 2 will become 4… If you trust her this much that she will return in 1year then go for it, but remember - if the money doesn't come back - your relationship with her will be dented forever.

  • +2

    My family are pressuring me to lend her the money as she has two young children to support.
    She and her husband have high paying jobs
    My sister told me that she has 300k in EFTs,

    It's apparent they have the means to support their children.

    If your Sister has the $300k in a popular ETF such as VDHG the total returns for the past 12 months has been 14%. The past 3 years it has been 42.6%.

    To offer you 2% while she is getting 14% is a bit rude.

    What she wants from you is the equivalent of a bridging loan. The interest rates on that start at 4.95%. She must think you came down in the last shower to offer 2%.

    • She said Vas shares. But as I don't know much about investing I don't know how they compare to VDHG.

      • total returns have been better than 8.5% yearly for the past 10 years.

        https://www.vanguard.com.au/adviser/products/en/detail/etf/8...

        I would suggest you educate yourself about investing and get part of your money working a bit harder.

        I would also suggest that your family think you don't really care about money and you are "rich".

  • +4

    Tell your sister and parents you have put the money in crypto and NFTs and you will be able to lend her double the required amount in 6 months.

    • Lol I like this

  • +3

    She is taking advantage of you and the fact that she should ask is appalling. Ask yourself: are you willing to gamble your relationship and your finances on an ambigious loan? The answer should most certainly be no.

    She has more than enough LIQUID money (ie money that you can cash in, ie the SHares/ETF). You shoudl suggest she see a financial advisor if she is confused about how to manage her own money appropriately. There is no need to justify your response to her, as her ask is so unreasonable. If she demands, just say that you have your own plans and life that you need the money for, and the rest is not her business quite frankly. There's also no reason for her parents to cash out super to help her as they will need that money to live on, SHE HAS AN AWFUL LOT OF MONEY $300k IN ETFs… extremely few australians have that amount of liquid finance just sitting about to access.

    It is appropriate to lend money to family members if they have fallen on financial hardship, through no fault of their own (or even through a little fault of their own because hey, theyy are family), but absolutely not here, when she (1) literally doesn't need the money (2) it will disadvantage you and your future goals (3) how on earth can she guarantee paying back such a huge amount so quickly.

    It's also important to look after yourself and consider the lost opportunity of that money. Single people DON"T have others to fall back on if they fall seriously ill or get insured or find themselves in hardship. Barefoot investor is a good basic place to start. You need to think about your own goals as well… I understand if you're from an ethnic background people like to be more communal about things, and tahts wonderful, but its just not necessary in this case. She is wealthy. Period. You don't know what's in store for your future (house, kids, travel, business) so why should you be disadvantaged financially.

    Having children is no excuse for wealthy people not being able to afford them. If they are on a good wage, why on earth would she need a loan? Your family sound like either she is lying to them about her financial situation, or they just don't get finance in general.

    I would also see a reputable financial investor for yourself, so that you can put that money to work for you. That said, there's no rush or no pressure to do anything with such a huge amount of money, but really, it is a little bit wasted in high interest savings, but take the time to educate yourself first. It's surprisingly not that hard. She's on the Money also a good podcast.

    • If she went an shared this with an experienced financial advisor, he/she would also think she was joking, as she has more than enough to take care of her family and her new house.

      • She is a senior lawyer (8 yoe) and husband is marketing director. I would assume they would easily clear $200k a year combined, but I have never asked for the specifics.

        • +3

          that makes the ask all the more outrageous, she seemingly should have a decent education about money/ and the law. look after yourself x

          • @gigi16: She has a law degree and an MBA. So I assume she has a lot of HECs debt. I've never asked before as to exactly how much.

            Thank you.

            • @decisions2526: Wait… So she's asked you to provide an unsecured loan without a signed legal agreement on payout structure. She's not even using Vaseline for this… She's perfect for the career

        • One thing people need to remember is after tax is what matters…

          In any case, it sounds like they should have planned better and not expect to borrow 6 figures from someone else on short notice. I personally wouldn't, but if you did make sure whoever else is pressuring you, also guarantees the repayment by set date, and if not what are the penalties.

          This year is probably a harder year to start investing, but do it gradually and its like paying your tuition.

          Different people have different risk profiles, so speak to a qualified financial adviser. Start slowly, use the first step to educate yourself reading and understanding what you have chosen as your investment strategy.

        • +1

          Let them take care of themselves. You haven’t caused any trouble. It’s the fault of your family members for putting the pressure on you. Let this be a lesson to you. You need to focus on providing for yourself. Relying on family is a dead end. Property value growth is beginning to flat line.

  • +2

    Just noticed you said that they have bought the house already and asking for money now. So clearly they either have the money and is asking you for money as it advantages them, in which case you sure as hell shouldn't lend them money, or they don't have the money which shows they are financially irresponsible and already overstretched in their finances so unlikely to pay you back within the time frame they claim in which case it's even more reason not to lend

  • Tell sister / parents you walked into a casino and put it all on red because you wanted to give her more money, but lost it all … problem solved ;)
    (hint: they already treat you like dirt, so this excuse may not be beyond the realm of what they already think of you :/)
    (lesson: there is a reason that the topic of money was not discussed in the good ole days between family and friends, you are seeing why!!)

  • +2

    Don't do it… what audacity to even ask you for such amount.
    You know where this is heading - straight to Court…. and both you and your sister will never speak to one another for the rest of your lives.

    Act responsible… you are the loser her. You are losing your high interest, the money, the lot… why are you even contemplating this.

    You told people about how rich you are and now look, they all come out of the wood work asking for money.

    You know this is not going to work out well…..

    Have you got a solicitor or accountant…. anyone who can verify and eventually act as witness in court bc you know this is where it is heading… and she is overseas…. you may as well kiss your money goodbye now

    • My sister is actually a lawyer (a tax lawyer, but a qualified lawyer nonetheless).

  • I think it is really great of you for considering this so heavily. To all the folks who are coming up with some blanket rule regarding lending money to family members, I really feel sorry for you. No one hear knows what your relationship with your sister is like and i can only assume you are quite close.

    The only thing i think you are doing wrong is a 2% interest rate, that is far too low. If she is borrowing the money from you so that she can keep ETF's, you are essentially providing her with a margin loan. A margin loan should be attracting interest that is roughly 2x the mortgage rate of the day due to the risk associated with it. Without knowing what ETF's she is in - they could be worth 50% of what they are currently worth in 12 months time. If you are particularly concerned, you can effectively build in a 'margin call' to your arrangement. You can keep it simple, i.e if the ETF Value drops to 200k then she needs to repay the loan immediately.

  • lending to family or friends is fraught with danger (not just financial, you can have serious falling out if things go pear shaped). Having said that if you must lend, then get it in writing and signed and independently witnessed and charge more than 2%, if she has EFT's then charge her a minimum of the interest rate she is earning on those otherwise they are just profiting off you. Margin loan rates depending on your standing are normally in the 5-9% range. your rate should be somewhere in there.

  • buy a g wagon

  • wheres the update op

    • +1

      Haven't had the discussion yet. Need to present the exact reasons why I am refusing to my parents. They are the ones who are pushing this.

      • hope it goes all well, good luck

        • +4

          Thank you. I will update the forum. I'm not going to let myself be taken advantage of.

          • +1

            @decisions2526: do you have plans to buy a property / invest? it'd be interesting to see what their response would be if you were to say you are saving for a deposit or want to invest now whilst share market is dipping (for more than a 2% gain YoY)

            • +2

              @lk0811: I don't have any rush to buy at the moment (I'm in a share house). I'd like to learn more about investing and making money.

              • +1

                @decisions2526: You should buy your own house/apartment with that money instead.

      • She sounds more well off than you. In fact, you should hit her up for money. Put that to your parents and see what they think then…

        • +1

          Probably, there are two of them (lawyer and marketing director).

      • +2

        You don't need to justify anything to anyone

  • I lent a small amount to family for a short term at no interest. Though it was paid back, this delayed my plans to buy an investment property. I was subsequently priced out and am salty af (not with them, with myself). If she has 300k in assets she can borrow against that.

    Edit: the OP doesn't even state what the borrowed money is for?

  • NO, NO, NO, NO!!!!!!!
    Not sure which one you didn't understand, but NO!
    This person, regardless of her being your sister, is conning you. She will never pay you back and clearly has some sort of jealousy issue that you know nothing about, and who has decided to 'get at you' for her ill-conceived and unknown issues with you. THEY HAVE MONEY, BUT THEY WANT YOURS TOO. She doesn't care that she'll end up being an A Current Affair story, she has no intention of having anymore to do with you after she takes your money anyway - Water off a ducks back to her.
    Tell her your money is totally tied-up in a 2 year long-term investment and can't be got at, so 'SORRY'. Also, make sure she doesn't get at your parents either, because they're her next target.
    YOU HAVE BEEN WARNED, NOT JUST BY ME, BUT ALL THE OTHERS ABOVE.

    • +2

      Good grief. I am sorry that your family life has left so many scars.

  • +3

    Tell your sister that you spent your money on alcohol, fast women, and fast cars.

    The rest you wasted.

    If you can afford to lose your money lend it to your sister, families have broken up over non-repayment of loans for a lot less than your sister wants.

  • +1

    2% doesn't beat inflation. Surpised at how sour everyone is..

    Loan her the money but put a caveat on the property or second mortgage.

    Or just say no, she's buying more than she can afford and to find an appropriate property

    • -4

      Folks around here get salty when they see opportunities afforded to others that were never afforded to them.

      • +1

        i'd never even contemplate asking a parent/sibling or friend for money when i have it because i want to keep my share portfolio - it tells you about their values and priorities, and the poster isn't one of them.
        if i did need to borrow money i'd be very clear and upfront about a reasonable amount (120k out of 200k of total savings is not a reasonable amount unless for a life saving emergency), the timeframe, repayment plan. I'd also offer upfront to have a legally binding document in writing regardless what lender asks for. The absence of those again is concerning

    • And then what are you going to do with that caveat on the property? Take her home if she doesn't pay?

      Yeah right… and lose his family in the process. If things go bad and he needs to act on the debt, its ALL BAD NEWS…. nothing good will come of it.
      And for what, 2%? No way that small amount of money is worth destroying family over.

      • +1

        Unable to make structural changes or sell the property until the agreed amount is paid.

        If he's lost the family, he didn't cause it in the first place - the combination of mother and sister started it and he agreed to loan the amount.

        It's not the interest rate that's going to cause the loss of his family, its his sister and partner defaulting on the principle amount. Paying someone back $200,000 in a year, unless you're expecting an inheritance, you win the lottery, sell their first born or are a millionaire is a flat lie. As someone pointed out, it's $4K a week + interest after taxes. Few can service that

  • +1

    Only reason why there may be some merit in this is if she has made a lot of money on the EFTs but held them for less than a year. Holding for over a year means the level of tax halves

  • +1

    Avoid, avoid, avoid.

    Nothing good will come of it.

  • Is "high interest" bank account < 2 % ?

  • +2

    Don’t see how it is your problem. She is potentially going to make a decent amount from EFTs whilst your stuck out of pocket. There is no guarantee on money with family.

    Don’t get pressured and explain to your parents the hypocrisy in expecting you to pull out your money.

  • Don't do it, this sounds like they are begging for trouble.

    If they want a loan, go to a bank. If they can't pay the bank loan, they can't afford your loan either. This is gonna go bad for sure.

  • It is a risk and depends if you can trust for the money to be paid back.

    Also why are other people pressuring only you. Perhaps everyone can put in an equal amount so the risk of default is shared with the rest of the family.

    2% interest on 120k is $2,400 so a lot of risk for not that much return in my opinion

    Also it sounds like they did not think it through on how to fund the purchase. Only realising that they will lose money from capital gains and fees on selling ETF.

  • is it normal to tell other family members how much money you have in the bank or how much your earn?
    I would have thought being flat broke is personal privilege information.

    This thread should be re-titled. " my family is screwing me over my money, do it submit?"

  • +1

    No way - Tell her to sell her EFTs to fund it or don't buy the house. It's her life choice. If she is holding on for the 12 month CGT - tell her to hold off on buying a house for 12 months then.

    You've got no idea what is really going on in that family and may never see the money again. My sister's husband of 10 years had racked up 70k of credit card debt on drugs before she discovered his addiction. They lost their house in the end because they couldn't pay it all back.

  • Money + Family don't mix

    If you're gonna do it. Write a legal document - free templates online.

    • +1

      Even then (and I would never suggest online templates, get it done properly)…. but even then, what's he going to do? Sue his sister and/or take her house?

      Messy no matter if it's drawn up properly or not. As you said in first sentence, money and family don't mix!!

  • How much is it going to cost you to loan her that money? How much would it cost her to liquidate her EFTs? How far do you trust her, or someone else in your family to make good on the principle much less the interest if things go bad? How confident are you that you know your sister’s financial situation honestly? How comfortable are you being out of pocket at the base line, or at the worst case of giving them the loan? How much protection do you really have against the worst case scenarios? You need to answer those questions to make an informed choice, or to have an informed argument with your extended family.

    My family are a shit show. I wouldn’t even tell them if I had that kind of liquidity. I definitely wouldn’t loan them the money because if I had it - I’d not be willing to risk losing it and I wouldn’t have any confidence in getting it back. You know your family, your sister, and your own circumstances better than strangers on the internet ever could.

  • As others have said unless you are prepared to not get the money back i wouldnt do it.

    I totally understand wanting to help family but unless you view it as a gift not a loan all this will do is cause problems.

    If anything view this as a lesson to never tell anyone how much money you have becuz who ever is 'pressuring' you to hand over your life savings has no business telling you how to manage your money.

    You want my non-financial advice wait for the current volatility to settle down on the market and throw it in to VAS VGS for a 30/70 split and reinvest any dividends.

    Tell you sister and your family if you never have any children that you will leave everything you own to your nephews and nieces when you go otherwise the your money is for you and your (potential) future family.

  • +4

    I've just logged back into my account I haven't touched for months just to say DO NOT DO IT !

  • +1

    No don't loan your sister 120k.

    2% interest is faaaaar too low for an unsecured loan anyway.

    Dream up a good excuse - hell buy your own house if you have to haha - but do not loan this money.

  • Also as others have pointed out it is very silly to share the news of your 200k bank account with your friends or family.

    Nothing good can come from telling people this kind of thing.

  • +1

    No no no!
    Shes got the money to buy her house. Make her sell off her EFTs to fund her house. But to minimise her risks and push the risk onto you, she wants to borrow your money instead. Can’t believe she would have the audacity to ask for 120k. I mean, if she cant afford to buy something then adjust her expectations.

    If you are super dooper close to her and trust her intentions then you need a legally binding agreement and it has to be more than 2% interest because the risk is wholly put onto you in this situation.

    Also, never tell anyone about how much you have in your bank accounts, theres nothing to come good or gain from it. You just attract judgemental people and leeches.

    • +4

      I love my sister but I am wondering if she is taking advantage of me because I know so little about finance (yes, I'm working on changing that) and she has an mba.

      • Just say you’ve now invested your money into shares and got nothing left to lend. Make her sell her shares to afford the property. Unbelievable….

      • +1

        Who cares she has an MBA. You don’t need a degree or any other piece of paper to invest wisely or know how to manage money, which she clearly doesn’t know how, otherwise she wouldn’t be asking for money.

        Both inc corporate jobs have yet have the gall to ask for you money….seriously?

    • +3

      She is a pure definition of selfish. It's like saying "can I borrow your car everyday to drive to work because I don't want to put kms to my car and use petrol"

  • Well it depends on the type of people involved and the situation. I've got an offset account against my loan. I'd rather my family member put their money in it and receive the interest from that than paying the bank interest.

  • +6

    Your relationship is as good as dead, as soon as she asked you. If you say no, she will never forgive you for taking the food out of her children's mouths (what do they eat; gold?) and if you say yes, you will soon see how little she cares about getting the money back to you.

    Either way you lose, but one way, you lose more.

    Sauce: Tomato.
    Source: Personal experience.

    • +2

      I know. At first lending it didn't bother me until I realised just how risky the whole thing is.

    • ditto. the damage was done as soon as she asked the question, regardless of what you do. and that's on her, not you.

      • +3

        It's caused a lot of friction. My mum is pretty angry that I even suggested not lending the money. I guess she is thinking of her grandchildren.

        • +1

          i am also against you lending and i think your sister is taking you for a ride, but sometimes you need to consider the cost of losing your relationship with your parents who by the sounds for one reason or another (?grandkids) is pushing you to lend. You can't choose your family unfortunately which makes it difficult. If you do decide to lend perhaps negotiate a smaller amount and have a legally binding agreement

        • Ask your mum to pucker up 60k, you deliver the rest and slap on a caveat on a property along with terms of repayment. If your mum doesn't do it then you have the pot calling tre kettle black

        • +3

          If she is thinking of her grandchildren why isn't she furious at your sister and husband for not providing for them when they've got $300k in ETFs? It makes no sense.

  • +2

    Tell her to get a margin loan against the stocks. Job done.

  • +1

    Ask to have a stake in the property and that repayments become buying out your share and needs to align with whatever the current value of the property is.
    It might be a decent way of making her back out, as opposed to just saying you don't want to, which your family will hate you for.
    Asking for a stake as you helped pay for it at least sounds reasonable.

  • +1

    Don't do it.

    But if you are, at least go to a solicitor and have a written contract of the money you lent. So if they do misbehave, you've got some legal recourse

  • Quick buy ETF for 200k right now.
    It's a good time buy too.
    Then tell her you have 200k in ETF sorry.

  • Also, it's important to note that we often give way too many concessions for poor behaviour just because it's happening in a family context. Just because a family member has asked it of you, doesn't mean they are not behaving in a way that is toxic and unfair (ie: parents pressuring you). It's hard as obviously we are taught to respect and follow our parents wishes 100% as children, but, often that is not the definition of a healthy relationship when we take it into adulthood (but parents have a hard time letting it go). It sounds obvious but it's much harder to recognise in real life. Family counselling or personal counselling for you could be another option :)

  • +1

    She has 300k in etf but doesn’t want to sell..
    Hows get stuffed sound, tell her to use her own money before yours, that’s plane rude, or tell her the interest rate is 4% and that you will get a mortgage registered on her house and she will pay all legal fees to do so

  • You would have to be insane not to enter into a formal contract. Too much is at stake.

  • Say with the recent (today's) market drop that you invested YOUR money in to ETFs.

    Why would you sell your stocks when she refuses to? Done.

  • +3

    Put the 200k in ETF's, now you can't lend her 120k.

  • +4

    No man no. Just no.
    No…
    N O.
    no
    Just no.
    NO
    DON'T NO!

  • Be smarter and set some terms.

    Loan interest rate is the larger of either:
    1) 2%, or
    2) ETF return rate between now to when loan is repaid.

    Loan shall be no longer than 1-year and to be settled in cash or cash-deposit equivalent.

  • you may lend her the money but make sure to sign an official contract with them on the terms even though they are family.

    honestly, it is not reason for them to say you got spare money and lend to them easily because you dont have wife/kids at the moment. they are two working people that have enough savings and buying house is theor choice and commitment as a married couple. why would you need to tbe bothered by their decision. it is a bit selfish of them not to think of your situation. it seem they expect you not able to get married and have kids, or have your own life. you are supposed to be their sibling, not an extra piggy bank.

  • +3

    Whilst I would never advise lending to family, I do find it very strange to be even considering when they have assets to sell lol… like… doesn’t that completely invalidate their need? Just tell her to sell the ETFs. Are you a charity??

  • +1

    Well. I won’t say I won’t do it especially if it was my sister.
    However I think it’s not fair to be paying just what the bank is charging. She is obviously wanting to hold on to her own investments which would generate more return than 2%.
    Your opportunity cost, whilst technically is way lower than 2% if you are looking at savings account, should be reasonably higher than 2% but comes with risk in shares. Maybe 3% or something? Includes like a profit sharing component for you as well which maybe like an average return you could have made if you didn’t lend her the money and invested in etf yourself.

    • +1

      This. I would ask her the question 'can you tell me why you would rather not sell the etf?' and if she says she wants to keep it for investment long term then your next question is 'so you're telling me you want me to give you the majority of my savings for 2% because you think you can make more profit for yourself with my 120k, is that correct?'

      • She can also sell her ETFs, buy the house, property is also investing in the long term.

  • Lend it to me and I will give you 3 percent.

  • Out of interest what high interest account are you currently in. I thought they all went to garbage during the pandemic

  • OP, as many others have said, don't do it, if family keep harassing you - lock it away in a term deposit that you can't touch, buy an investment property, or a nice new car and advise them that your spare money is no longer available.

  • Lend her $50k.

    She and her husband would have knew how they we going to pay it off when they bought the house.

    If she didn't then it is irresponsible.

    You should tell her your investing your money in ETFs and if they struggle to make a mortgage payment you could lend them some money. From income you generate with your own ETFs.

  • Step 1 to lending money to family - Do not lend money to family
    Step 2 - refer to Step 1

  • lol quality shit post

    • same as your comment

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