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My wife and I have a pretty firm policy of not lending money (exception if someone just needs cash until they can get to an ATM/Venmo us back). We've seen too

My wife and I have a pretty firm policy of not lending money (exception if someone just needs cash until they can get to an ATM/Venmo us back). We've seen too many people who've had relationships ruined over it. In our view, the two primary cases simply don't have good outcomes: * A situation where the borrower has made many, significant financial decisions. Lending them money isn't going to fix their problems. * A loan that is far too large. While this is not the poor decisions of point 1, it's often a purchase that has more affordable options. E.g. they can afford a $10k car, but want to purchase a $20k car.

bawolff 3y ago
If neither of those situations applied (in a developed country) they would probably just go to a bank. Giving loans to people who banks pass on is usually a bad plan because they usually pass for a reason.
- rightbyte 3y ago
  Unless you want a profit on your loans to friends and family you don't need do the same calculation as the banks. Also, you got way better character knowledge than they do. You know which friends are low and high risk and will do something stupid with a loan. Some are rock solid and some will use the money for 200USD cab rides between bars when they can't pay the gas bill.
  - bawolff 3y ago
    > Also, you got way better character knowledge than they do. You know which friends are low and high risk and will do something stupid with a loan. Maybe, but you are also blinded by your emotional attachment. I suspect for most people that would far outweigh any benefit from knowing your friend's character. As far as profiting goes - well is it a gift or is it a loan? Even if you get the principle back exactly you are still losing money due to the time value of money. Maybe your ok with that. Maybe you are ok with not getting it back at all. In which case it is more a gift then a loan. Which is fine as long as you are honest with yourself about your expectations.
  - mcny 3y ago
    I'll share an example of a friend who can't open a bank account because their father apparently wrote too many bad checks by opening accounts on see friend's name while my friend was still a minor. This is a person who works as a teacher at a public school so has a regular job and is a US citizen by birth. The only crime if you can call it that is they don't want to send their father back to jail just so they can have a bank account.
    - bawolff 3y ago
      This is all very sad, but that is what happens if you take the fall for someone else's crime. If taking the fall for someone else's crimes was consequence free, then everyone would do it. If the same thing happened to you, you probably would also blame your friend as well. E.g. if your friend's father pretended to be your friend, borrowed money, and then when you asked about it, the friend claimed that he himself did it because he didn't want you mad at the father, you would probably blame the friend not the father.
DoesntMatter22 3y ago
Had multiple situations where I've loaned people 10k or more and they acted like it was a gift. Well, I did that once and then made sure all future deals had contracts.
xyzzy123 3y ago
I think the secret to success in lending to family and friends is to not really expect to see the money again (and still be OK doing it). This still doesn't solve all the kinds of drama and conflict that can come up (e.g. siblings can get annoyed with each other when 1 pays back a family loan and the other doesn't), but it helps a bit. I limit lending amounts to what I can sensibly afford, and I still have to apply judgement. I also gently knock back requests for "more" loans where there's been a large amount unpaid in the past.

bawolff 3y ago

If neither of those situations applied (in a developed country) they would probably just go to a bank. Giving loans to people who banks pass on is usually a bad plan because they usually pass for a reason.

rightbyte 3y ago
Unless you want a profit on your loans to friends and family you don't need do the same calculation as the banks. Also, you got way better character knowledge than they do. You know which friends are low and high risk and will do something stupid with a loan. Some are rock solid and some will use the money for 200USD cab rides between bars when they can't pay the gas bill.
- bawolff 3y ago
  > Also, you got way better character knowledge than they do. You know which friends are low and high risk and will do something stupid with a loan. Maybe, but you are also blinded by your emotional attachment. I suspect for most people that would far outweigh any benefit from knowing your friend's character. As far as profiting goes - well is it a gift or is it a loan? Even if you get the principle back exactly you are still losing money due to the time value of money. Maybe your ok with that. Maybe you are ok with not getting it back at all. In which case it is more a gift then a loan. Which is fine as long as you are honest with yourself about your expectations.
- mcny 3y ago
  I'll share an example of a friend who can't open a bank account because their father apparently wrote too many bad checks by opening accounts on see friend's name while my friend was still a minor. This is a person who works as a teacher at a public school so has a regular job and is a US citizen by birth. The only crime if you can call it that is they don't want to send their father back to jail just so they can have a bank account.
  - bawolff 3y ago
    This is all very sad, but that is what happens if you take the fall for someone else's crime. If taking the fall for someone else's crimes was consequence free, then everyone would do it. If the same thing happened to you, you probably would also blame your friend as well. E.g. if your friend's father pretended to be your friend, borrowed money, and then when you asked about it, the friend claimed that he himself did it because he didn't want you mad at the father, you would probably blame the friend not the father.

DoesntMatter22 3y ago

Had multiple situations where I've loaned people 10k or more and they acted like it was a gift. Well, I did that once and then made sure all future deals had contracts.

xyzzy123 3y ago

I think the secret to success in lending to family and friends is to not really expect to see the money again (and still be OK doing it). This still doesn't solve all the kinds of drama and conflict that can come up (e.g. siblings can get annoyed with each other when 1 pays back a family loan and the other doesn't), but it helps a bit. I limit lending amounts to what I can sensibly afford, and I still have to apply judgement. I also gently knock back requests for "more" loans where there's been a large amount unpaid in the past.