Friday, January 11, 2008

Family Loan?

Do you loan money to family? Ever? I sat thinking about that after reading an article on the New York Times about giving his grandmother money, a loan. He was undecided about it.

I'm firmly of the mindset and practice of I never loan family money. It's not a loan, it's a gift. However, I also usually do not give family money. I have and will pay a bill for a family member directly, but I won't just give them money to "pay some bills." No way. I want to see where the money is going, or else I'd end up like JW and his loan to his cousin. Turns out the cousin had said it was going to his family but it went to finance his new lifestyle.

Well that wouldn't happen to me. I've paid for my grandmother's phone, gas, bills, etc. And I've bought her gift cards for groceries. I've also paid a cousins bill when they needed money for personal reasons. But to give cash to someone, well it's just asking for trouble. Is it ever right to give a family member a loan? Or is it just a gift? Or money should never be exchanged between any family members?


Anonymous said...

A gift is a gift and a loan is a loan. If I am expecting to be paid back, it's a loan. If I loan money to anyone, family included, they must sign a promissory note, that my attorney drew up, with interest and payment schedule. It must be signed and notarized. Don't pay me back? Expect to be sued.

Only one person has ever borrowed money from me. (yet, I've given out tons of gifts)

moneychallenge said...

I'm with you LAL. I avoid loans to friends and family. I'd much rather make it a gift.

If I have the money to spare, then I can just give it. If I don't have the money to spare, I can simply say "I'm sorry, I won't be able to do that, but would this (partial amount) help?" If they insist on paying me back, then fine. But I hate walking around with that expectation. It messes with my sense of "financial freedom" (shudder).

Em said...

This is the one money thing my partner and I have really fought about. I believe that you don't loan money in an informal way--you need contracts. That doesn't mean that you necessarily make your sister go to a lawyer with you when she needs money; you can give her a gift. I also think it's good for the recipient of the gift to receive it gratefully, and seek opportunities to do something nice for the giver (a return gift later on, a service, or so on).

He believes that you can "loan" money to family members, reckoning it unlikely that you'll ever see it again, but you still call it a loan and agree on payment back, to help your relative save face. I understand his goals, and I disagree--it's important to me to keep promises and I don't want to help a family member to make a promise he won't keep.

I'm Grace. said...

I've always followed my father's rule of never giving out money that I expect back. But I have sometimes called it a loan, and, at least within my family, I have been disappointed by my adult children's lack of effort to pay anything back.

On the work front, I have a colleague who regularly borrows small amounts from me, and who always pays me back. We don't do paperwork, and I suppose, if at some point she doesn't pay me back, I would stop giving her money. But it's never been a problem.

Anonymous said...

I think loaning money is a tricky, tricky thing. It can destroy relationships in a blink of an eye...I'm in the make-it-a-gift group of your readers. I like my friends and family too much to ruin our relationships over money!

Jim ~ said...

There are some things I will never do. Loaning or borrowing money from family, and working for family. Money and family related things really complicates a situation and makes everyone feel uncomfortable. If it is a loan then it must be treated as such with some sort of document backing up the claim that it is a loan. I am not one to turn down a gift of money though. Money given isn't as good as money earned though.

Bouncing Back said...

In a previous financial life, I would give a loan to family members. It's still a touchy subject on the repayment part. One relative said since I was not married and had a job, he did not see any sense of urgency in repaying me back (and ended up not repaying me back).

I had given money to my mother on numerous occassions only to find out it never went towards things like the electric bill, gas bill. Now if she asks for money, I ask for the bill and I'll make a check payable to that company. her repayment schedule was not good. Since I've put into effect my you must show me the bill and I'll pay it policy, the number of requests for loans has greatly dropped.

Living Almost Large said...

I guess I'm not into loaning money and never will be. But supporting a family gets tough.

One 2 One Lending said...

Question: A good friend of mine is in a tight spot financially. I'd like to help her out, but I'm worried that lending her money might sour the friendship.

Answer: Adding money issues to a friendship can result in an explosive situation. The first thing you need to do is determine why your friend is having financial problems. Is this a temporary state, or does your friend always seem to be struggling? If financial panic is a recurring theme, you need to understand that in most cases the problem runs deeper than a lack of funds. Sometimes people overspend to assuage feelings of inferiority or inadequacy. Or they run up debts trying to find happiness through expensive possessions. Others are never inclined to set aside money for unexpected expenses and are consistently flattened by them. Unaware of the true reason for their financial irresponsibility, people like this usually have difficulty changing their fiscal habits.

If your friend is always experiencing financial problems, any money you give them will just serve as a Band-Aid, and sooner or later your friend will be in dire straits again.

Ask yourself: Can I afford the loan? What would happen if your friend never paid me back? How would you feel? If you cannot afford it, or if you are not willing to relinquish your hold on the money, don't make a loan. On the other hand, if your friend is ordinarily financially responsible and you are sure you won't need the money soon, draw up a loan agreement detailing how much you are lending, when exactly your friend will repay you, and whether both of you would feel better if the loan had interest.

One 2 One Lending provides the tools to “Get it in Writing.” The AgreementBuilder will walk you through step by step in creating a promissory note and loan schedule. This way your money will help not only your friend and it won't destroy the friendship.