How to go about loaning to a friend

Submitted by TooHonestImAfraid t3_127uess in personalfinance

Needs 7k. Offered to pay back 1k per month for 10 months.

Should I take a loan asking for $10.6k back after interest/fees (over 24 months) or use my emergency fund? I'd put everything payment of his towards the loan, not run the full term. No prepayment fees of course.

No question at all he will pay it back. Only way he wouldn't is if he died and even then the contract he wrote up guarantees it from the sale of his house. I wouldn't ask my friend's grieving parents for money I loaned him though so that's the only foreseeable way I'm out the money...

I've loaned him more before (his homes down payment) but it was from checking, not an emergency fund. Don't have that to spare at the moment because of a pet's surgery this earlier this month.

The repayment is higher than the loan interest so I feel that's better than an emergency fund. I'd hate to have a massive issue arise when I loan him 35% of my "oh shit your business failed" fund and end up losing my house because I want to make an extra $3k over a year.

What am I ignoring because of my close friend rose glasses?

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bflaminio t1_jefvvxj wrote

> Needs 7k. Offered to pay back 1k per month for 10 months.

That's an absolutely usurious interest rate. No way would I charge that to a "friend", or even an enemy.

> Should I take a loan asking for $10.6k back after interest/fees (over 24 months) or use my emergency fund?

Neither. Don't borrow money to lend it out, and don't dip into your e-fund. If you don't have enough extra cash on hand to make this loan, don't do it.

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AlfredKinsey t1_jefxnex wrote

I think it would be usery in most states, i.e. illegal lending rate.

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trueworkingclass t1_jefv9du wrote

  1. you need a written contact and list detail term, time frame, interest for pay back, also listed what happen if he dies then who will pay for his debt, it's business, treat it like it
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GardenGood2Grow t1_jeg0x0a wrote

If you need to borrow the money to lend the answer should be no.

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TyrconnellFL t1_jeg1txy wrote

You should only lend money you have, you should be willing to have it become a gift, and you should charge fair rates. Right now that’s in the $400-500 range, not $3,000.

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HaruspicyEnjoyer t1_jeg3fbs wrote

>No question at all he will pay it back.

That's what everyone says right before they cosign.

>take a loan asking for $10.6k

Don't even consider this unless you can comfortably pay for it yourself, not borrow.

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TooHonestImAfraid OP t1_jeg3q1g wrote

Told myself if the first reply says don't do it I'm not.

He's going to have to ask some else.

Thanks internet stranger.

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BillyMackk t1_jeg4jpd wrote

Only lend money to family and friends you don't mind losing.

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firefly20200 t1_jefz7uu wrote

You don't. Something doesn't add up.

As long as he had a somewhat decent job he should be able to get a loan for $7k, even if it's like 20% interest... which would be cheaper than yours.

If he's that large of a risk to a lender (like doesn't have a job, is $100k in debt already on $50k income, etc) don't loan him the money. Also stay out of it if he's doing something illegal, like selling drugs which is why you know he'll be able to pay you back, but a bank or other lender wouldn't approve that...

Something doesn't add up, and you're charging him WAY to much.

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