How do you feel about and handle family and friends who ask to borrow money. I ask this because as the economy goes south, inevitably there will be people who lose their jobs and don't know how to make ends meet.

We live within our means and would prefer to sell our material things and get second jobs (yes--even menial ones) to avoid borrowing money--especially from family and friends. It bothers me to be making things from scratch, sewing my families clothes, driving older model economical cars, buying our material things second-hand where possible...

...only to be asked for a "loan" which often goes unpaid back by folks who will not get a second job, continue to go out to restaurants to eat, take fancy vacations ( I'm not talking camping vacations like we do). They take the money we have loaned to pay the mortgage on a home they really can't afford or their new expensive cars.

I might add that these folks consider us "cheap" for not spending lavishly or treating everyone to lavish parties.

I've taken a lot of heat from my family members for not lending money to a close relative who lives high off the hog and doesnt' think of the consequences until it's too late.

I do believe in preserving family relationships as much as possible, so I have decided when the inevitable request for money rolls around that I will say, I'm sorry our money is tied up right now. (BTW, the last time I said that this relative asked me to get a second mortgage in that case since they had trashed their credit rating...)

I have a friend who has a policy with their children that any lent money must be repaid before any other amount is lent again.

What say you?

-- Ann Markson (tngreenacres@hotmail.com), August 01, 2001

Answers

We lend money to our grown son,only because he has a great track record of being diligent to pay back.He was going to go to the bank to borrow 3,000 for a car,when we told him we would be glad to lend it to him.The only problem is with family loans like that they really don't establish a credit rating.I have a friend who just co-signed a loan for her brother for 7,000 and is stuck with it.It will be a real hardship for her.

-- teri (dnsmacbeth@aol.com), August 01, 2001.

Ann, you are correct in not lending money to family members. It can cause problems in the long run when you see them doing something else with the money that could be used to pay you back. Some people cannot seem to learn to live within their means and then cry for help when things go wrong. Those people will always be crying for help and the ones who loan money to them will always be the first ones they ask for more money from and the first ones they call cheap or will talk about when they are told no. I also tell family members my money is tied up and I am sorry I can not help at this time. It saves a lot of problems later when you try to get it back. I do, however, help out if there is an illness and the family cannot make ends meet, but it is with something that is desperately needed such as groceries for several days or help on their land until the family can get going again. I also will not co-sign for any loans Jenn

-- Jenn (normaj3@countrylife.net), August 01, 2001.

I'm right there with you. I work hard to pay off things i want so i'm not in debt. I don't eat out a lot. I take my lunch to work everyday. I buy my clothes only when they're on clearance. I do without a lot of things i would love to have. I do many things to live within my means, like you.

It's irritating to be asked to loan money to those who don't make an effort to spend less so they too can live within their means. And it's irritating to see these people use the "extra" money they now have from your generous lending continue to eat out at expensive restaurants, etc. rather than save a few bucks here & there to toss in the jar that will pay you back.

I don't loan substantial amounts of money to family or friends. I have no desire to pay for another person's house or car payment or for a meal at a restaurant that i hardly go to myself, or even for them to have a nice vacation.

I like your friends idea about loaning *again* only after the 1st loan is paid back. And if you put a limit on how much you loan to each person that might ask you won't go broke. hopefully!

:-)

-- Buk Buk (bukabuk@hotmail.com), August 01, 2001.

I like the idea of "no more until I'm paid for the first one", but to insure that first payback, how about some collateral (the banks do know what they're doing when it comes to getting money back!). Have the person sign over a piece of personal property ON PAPER, signatures and all, that is worth at least as much as the monetary value of the loan, preferably more, and is something that they would actually mind losing and that you would actually not mind gaining should the loan be defaulted.

Sound too much like a bank? Then let them go elsewhere. The only thing that has ever been true of human nature is that people will only get away with the stuff you let them get away with.

-- Soni (thomkilroy@hotmail.com), August 01, 2001.

I say don't lend anything to these people. If you sympathize with them, you should just GIVE them some money, an amount that you are comfortable with, and make it clear that it is a gift—not a loan. This will help you avoid the problems that come from lending.

-- Rick#7 (rick7@postmark.net), August 01, 2001.

Teri:

I should mention that I am not totally against lending money--there are times when that does make good sense. For instance, you might be willing to give your son a break on the interest because you know he will pay you back and that he is making ( I hope) a wise purchase.

Or for someone who, no fault of their own, in desparate need.

BTW, that friend who lends on the basis of prior loans being paid back:It has taught their grown children the value of their responsibility to hold up their end of the relationship. After many years--there are no bad feelings between siblings or between generations.

That's another problem: I've seen families torn apart by one sibling continually being bailed out by mom and dad. There can be lasting family damage done by this.

I like Jenn's idea of providing groceries--not money. In my case, the relative "didn't cook" which is, in my opinion, a choice. I like to cook our meals, but I choose to do so to have extra money for our savings in case we should ever be without a job.

Speaking of which, it is one of my pet peeves that many professional people find it below them to do whatever it takes not to have to borrow money after they have lost their jobs. There is ALWAYS a need for babysitters, for housepainters, for small home repairs...It should be beneath them to ask to for a loan--not to take menial jobs.

It doesn't occur to many people that the instant they lose their job is also the instant that vacations must be put on hold and new items must not be bought.

I have lived through downturns in the economy--but am amazed at the number of people who don't remember or never knew. Bad times are inevitable and no political party can prevent this. Be prepared is my motto! Even without a downturn in the economy--death and sickness occur without warning....

On several occasions I have lent money to families to go to some trip (school/scouts) only to watch them purchase unlimited snacks and geegaws for their children while my kids did without and we brought our own food.

If there is a new boat in your garage (and you don't make your living at fishing), why don't you sell that before you borrow money?

-- Ann Markson (tngreenacres@hotmail.com), August 01, 2001.

No lending of money to friends at all if you want them to stay friends. As to family we limited ourselves to our own kids and thats it unless it is a absolute family emergency. As to our kids we have had good and bad, the girls have been wonderful,the boy is a whole other ball game and we have told him now that we will not lend anymore money to him or co-sign for anything.

-- TomK(mich) (tjk@cac.net), August 01, 2001.

There's nothing like getting a plethora of answers here! I would suggest offering instead to teach them how to do things--they need money for food? Help them build a garden, giving some of your seed; want eggs? Teach them to raise chickens :) Maybe even give them some laying hens and a broody one (if you are lucky to have more than one). NOthing is more valuable than an education :) THis way, you are teaching them to solve the problem, and not just treating the consequences. SOrta like if you just treat Cancer with pain killers-- doesn't solve anything, really, but if you attack the cancer itself with chemo, radiation, etc. DOn't give relatives pain killers, give them cures :) If they turn the cure down, well, that's on them now, isn't it? And make usre you let them know that you are more than willing to *assist* them, not raise them, unless they are willing to let you claim them on yur taxes :)

-- Brendan K Callahan (Grinnell, IA) (sleeping@iowatelecom.net), August 01, 2001.

Ann,

In my business I extend credit on a regular basis. As a result of this I'm often looked upon as a 'lender' by others (family, friends, acquaintances, customers, their friends and family, etc.) so I have more than a passing familiarity with this topic.

While there is no pat answer, I'll tell you a couple of different things I've done. If they have some free and clear asset, use it as collateral. I don't mean get a promise or a handshake, either. Get yourself named on the title to the car or whatever as the lienholder and get it to the BMV so the state lists it that way. Don't rely on them to do it. Find out how much your state charges for a title, get that money from them and take it and do it yourself. Make sure you get a promissory note properly filled out, executed and notarized AND get a proper security agreement filled out specifying the collateral. If you don't feel comfortable with the paperwork then find out what an attorney will charge and have them pay that, too. Make sure you include a clause allowing you to sell the note. That way if it comes time to repossess something, you can have sold the note and not be the evil person who takes their boat or car, etc. I know this makes me sound like Simon Legree here, but so be it.

Quite frankly, since I don't want to be their bank, anyhow, I find making the terms as onerous as the toughest lender in town often makes them stop asking. They'll say,"Well, I don't want to do all that just to borrow money" to which I reply, "OK, then... sorry I couldn't help" and that's the end of that.

Another 'out' for you is to blame a third party. "My (spouse, attorney, accountant, parents, children, tax advisor, whatever) won't let me do that."

I like your simple "our money is tied up right now" response. Unfortunately, some either don't get or choose not to take the hint. A case in point being the party who suggested YOU get a second mortgage to give them money. To them I might suggest you say you already have one. You could always record one yourself to 'AM Enterprises' (yourself) without even listing an amount. Recording fee should be under $10. Then, you can truthfully reply you already have a second on your property (albeit to yourself). Even if this party has the gall to go check, they'll find a recorded mortgage to actually be there. I know this sounds like guerrilla warfare, but sometimes that's what it takes.

If you need any help with forms, feel free to email me and I'll send you what I use. I hope this helps.

-- Gary in Indiana (gk6854@aol.com), August 01, 2001.

P.S. I've never had a menial job in my life. I've mowed lawns, shoveled snow, delivered newspapers, shoveled manure (even elephant manure), worked retail, worked as a busboy, janitor, dishwasher, handyman, etc. through school. Since then at various times I've painted, done roofing, drywall, painting, carpentry and worked retail and in a manufacturing plant on 12 hour shifts. None of these jobs were 'menial' to me. They represented honest work for honest pay. I recall having someone I knew seeing me working retail one Sunday and asking "What in the world are you doing here?" I told him that this one day a week paid my two kids private school tuition and it was well worth it to me. You could see the change in his attitude instantly. Further, I'm sure his wife (who hated the public school their children attended) had some thoughts to share on their way home, too. ;o)

-- Gary in Indiana (gk6854@aol.com), August 01, 2001.

Preach it brother.

-- Ann Markson (tngreenacres@hotmail.com), August 01, 2001.

Gary, sure agree with you on there being no such thing as a menial job! Cleaned other folk's houses for over 15 years so we could afford to move to the "boonies" and get away from it all!!!

And believe it or not, cleaning houses pays better than ten dollars an hour and it's tax free, this was in a very "yuppie" neighborhood.

-- Annie Miller in SE OH (annie@1st.net), August 01, 2001.

When you loan money consider it a gift. So you give what and when you can. And you won't feel bad when you never see it again.

Never sign for colleteral unless it is your own child, and you've not been burned before.

If asked to help pay a bill, make the check payable to the company, not the asker. The only utils worth 'saving' are power and oil/gas, not phone. They can use the payphone with a calling card or prepaid cellular.
A friend1 was asked to loan money for the power/gas bill, that was past due ($800+) and if a $200+ payment was made then they could go on a payment plan. Friend1 gave friend2 the money who then paid the phone company instead. Power comapany shut her [friend2] juice off and now requires 100% to turn on the juice. Friend1 had used her credit card to get them money, she is really miffed! And friend2 asked for more money to fix the mess.

-- (perry@ofuzzy1.com), August 01, 2001.

Ann, I think you are being used. Don't feel bad about saying no. We don't borrow from relatives, and don't loan to them either. My husband has loaned to relatives about 3 times (before we were married), he was never repaid. If it is a real emergency, like needing food, then buy some food for them, don't give them the money.

-- Jeanne (jcd51@webtv.net), August 02, 2001.

We always do the same...if we give money, we consider it a gift, not expecting it back..except for our own grown sons....and they are always great about repaying loans. We don't usually have money to loan anyway. I feel the same way about working extra jobs rather than borrowing money from friends and relatives. We just don't do it!!! not ever!! I guess the only exception I would make was emergency medical bills and then would work like crazy to pay it back. We have luckily never had that problem. I have cleaned houses, waitressed and done childcare for years. I actually prefer service type jobs. I never consider any job menial. I have had people from high school see me working the deli counter at a local grocery and looked at me like they felt sorry for me. I felt sorry for them for being so narrow minded. I was making extra money on the weekend to help my family out during a tough time, and they couldn't see the importance. We have relatives that chose to just go on welfare instead. Infuriating!!!! and such a bad example for the children too!

-- Jenny Pipes (Auntjenny6@aol.com), August 02, 2001.

To date I have purchased 4 cars, 2 refrigerators, 6 "Christmas for the kids" and two Vacations. Have yet to see the first dollar repaid. Anne SE Ohio: I know what you mean, my cleaning lady always has a waiting list of new people. Rog

-- Rog SW Ohio (rw285@isoc.net), August 02, 2001.

I think you have to look at each case individually. I would never loan money that I cannot afford to lose. I would start with a small amount if it is someone I have never lent to before. If they return the amount in the agreed time, I don't hesitate to lend again. If they don't, they don't get another loan. I have loaned money to my father over the years and he has loaned money to me. As each of us went through difficult times it coincided that the other one was able to help out. We have always paid each other back and neither of us was out wasting money while we still owed on the loan so it was a loan relationship that worked.

My oldest brother on the other hand is a different story. He has managed to borrow over a $100,000 from my father over the course of many years and has never paid it back. My father finally quit loaning it to him after I kept bugging him to quit enabling him to not stand on his own two feet. My father finally stopped and lo and behold, my brother has managed to stay on his own two feet. My father now just considers that the loan was my brother's inheritence and he has written him out of the will. My other brother and I will get whatever they leave. It took my father a long time to understand that he wasn't helping my brother by bailing him out of his predicaments which were always self-inflicted due to making stupid decisions to buy things he shouldn't. For solutions to some loans, you may want to make a loan with interest. Although, I didn't do that with my Dad, he didn't charge me interest either. If the borrower sincerely needs the money and has bad credit, this is an option that is certainly generous if you want to take that chance. Keep the interest rate equal to or a little lower than a bank would charge. In some cases, particularly if you have loaned it before and they never paid you back, the answer is no. If any other relative gives you a hard time about not loaning the money, ask them how much they loaned the person. That will usually shut them up.

-- Colleen (pyramidgreatdanes@erols.com), August 02, 2001.

I don't do it. Anymore. For a long time I didn't do it at all, then when I moved out here with a relative I suddenly found myself in the money lending business again. He and his wife both work, he can't seem to find a steady job. He works off and on for temp services. She inherited land and house (14 acres) free and clear, now has a mortgage, second mortgage, and just bought a $10k USED vehicle (traded in a car with roughly $5k retail value for $1500). They owe me mondo money. At one point I spent the entire summer living on water and ramen noodles because he did not pay back a large sum of money that was supposed to have been paid back in 2 weeks time. With no job, I had literally no money to live on that whole summer, but they were still asking me for money.

They have borrowed to buy a piano no one plays, new furniture twice in 2 years, a mobile home instead of fixing up the house she inherited to live in, which now sits there empty. They buy pedigreed cats and dogs, but have no fencing for same. They eat out constantly. The other thing they do constantly is complain about how they can hardly make ends meet.

In the meantime, I haven't cleared $4k for any of the 3 years since I retired. I'm living primitively, almost never eat out. Building my own house. If I don't have the money for something (usually the case) I do without. My truck was totalled last fall when somebody's black angus herd got out in the moonless night on the lightless road, and I hit one. The guy who owned the cattle claimed it wasn't his, so I was out a perfectly good truck I had been relying on not only for reliable transportation but also to haul building supplies. If I knew then what I know now, I'd have gathered up the rest of the loose cattle and had a friend come over with his stock trailer. I finally (only recently) found a hauling vehicle I could afford. In the meantime I - guess what - DID WITHOUT.

I don't loan money anymore, but I'm a good $3k or possibly a bit more to the bad, and I can hardly stand it when they start complaining about how hard it is to make ends meet. Just want to wrap my fingers around somebody's throat and squeeze until my money pops out ...

It doesn't even do any good to right out tell them they've got no one to blame but themselves, they just "yeah, but" and whine right over you. YEEEEEEARRRRGHHH!

-- Better a tightwad than broke (imapariah@nowhere.com), August 02, 2001.

Hey Better a Tightwad,
you should go over to their house and join them for dinner all the time. Or just plain move in with them, say since you owe me money and I'm now broke and your the closest kin I'es got's, you're taking care of me until I can get back on my feet. They may not be the best company but I'm sure that you can even worserest then they'se can be. :) I'm sure the cash will show up quickly.

When ever you loan dough always get a promisary note signed!
The stationary stores have a nice set of forms, or do one yourself. And always take possession of the collateral.
Bummed to hear about the angus wreck, great Idea about rounding up all the others and taking them for auction.

-- (perry@ofuzzy1.com), August 04, 2001.

The best way to lend money to family and friends is to make them sign a legal document for it, so in that way if it ever (sadly) comes to that you can go after them in court, and garnish wages or whatever. Nolo Press www.nolo.com sells all sorts of "boilerplate" books and CDs with these types of forms, and they are quite reasonable in price. If they pay you in cash, give them a receipt and keep one for your records.

If it is a real loan for a significant amount, of course, with interest, you are supposed to report it on your taxes (as can they if say it is a mortgage loan), but that will also make your claim stronger should you have to collect. I think also if the interest rate is too low compared to the market rate at the time you can also run into tax problems (read it somewhere, consult your local tax professional or the IRS website, I think it is considered a gift or something and they might have to pay taxes).

I have borrowed money from my Mom, loaned money to my Sister, and have borrowed money from the same Sister. Was I in a bind? No, some money was tied up in other accounts. I signed papers on all and was GLAD to do so!

We believe in Bank of Family. Why? Who knows better than your own family whether or not you are a good credit risk? Also, bank loans carry a lot of extra fees (which should be covered by the exhoribitant interest being charged but isn't), that you don't charge to family members. Why make the bank money when you can help out your family instead? In a real emergency (healthcare, for example) of course you give the money when it is family. Everything else, present paper for signature. Believe me, responsible people do not mind signing loan papers.

As to recording it for credit rating purposes, you probably could still do that, as long as you have a contract. I've never felt the need to. Usually the threat of going to court to collect is bad enough--I've never had to do that on a family loan. And, just the fact that they know they signed a paper for the loan will help immensely. Also a contract is important so that a loan could be paid through an estate, if necessary.

A friend had one loan go bad, and that was to another friend who bought a car from them. They used a boilerplate loan form and did not do the title thing as they were moving out of state and didn't want the car, and when they moved he stopped paying (he was paying on time up until then). They had him served by the sheriff at work (makes a big impression and that way they can't avoid the certified mail substituted service) for small claims, and his wife (they were in the middle of a divorce, but she didn't know about the car loan) called up and settled immediately when she found out (very nice about it too--they told her how bad they felt about having to go to court, but they had also sent several "reminders" to him), so didn't have to fly back for court (thank goodness). They were out the small claims fee and the sheriff's fee, postage etc., but your time is worth something too, and they couldn't get the money any other way. The loan amount was about $1200.00, so it was worth it to go after him for it.

One of our other friends is currently the mortgage holder after selling his house to a friend who couldn't get credit at the time (of course, the house is collateral here). So it can be done. You just have to be very choosy as to whom you lend to. If the bank won't loan to 'em it's a good bet you shouldn't either! lol

Your solution is very good. Don't be shy about telling them that you have better things to spend your money on. Ask ever so sweetly if you could pull a credit report on them. I would also tell the other family members that THEY can go broke flushing money down the toilet by loaning (hah!) to this other relative. Being family is no excuse to take advantage of someone. GT

-- GT (nospam@nospam.com), August 05, 2001.