Dec 27, 2008

Loans Between Friends - Not Always a Good Idea

Have you ever lent money to a friend or relative? In times of economic hardship, more and more often our friends come to us with a request to borrow funds. Or maybe we are at a loss and need a few bucks to get by for the month, and we ask a friends to spot us the dough.

The New York Times reports that it's best to stop and think before lending money to anyone, even a good friend. The article highlights a professional financial planner who ended up lending her manicurist(!!!) $3000. Her manicurist needed the money to avoid eviction, and tugged on the emotions of a woman who would otherwise advise clients not to lend money to personal acquaintances.

For me, I like to lend money to people in need, but not to my close friends. Instead, I use Prosper's P2P lending system. At least I can do a credit check on the person before deciding to lend them money, and I can earn a decent amount of interest back in return. (Then again, it looks like it will be a while before I can lend on Prosper due to some legal trouble they're in.) If I were every to lend money to a close friend, I'd have to think of it as a gift when I part with the funds. If I get it back, all the better.

Q & you A:

What's the most you've ever lent a friend? Did you get that money back, or did it ruin your friendship?



5 comments:

Lizzie said...

I actually never lent to friends, but my friends lent me when I needed it (more than $30K collectively), and I paid it back with interest in 4 yrs. I would have not ruined my friendships for money.

Now, I use Lending Club while Prosper is in quiet period, and to be honest, I'm enjoying it more so far: better quality borrowers (in general), no bidding, lower default rates (around 3%) and starts at $25. Only time will tell if I go back to Prosper. Have you tried any other P2P lending site?

her every cent counts said...

Hey Lizzie, I just signed up for Lending Club but have yet to make a loan on it. I'm excited to try it out. I've heard good things about it and when I get enough money together I'd like to see how my loans do on there compared to Prosper.

That's cool that you borrowed money from friends and paid it back. My friends, I know, would try their best to do the same. However, sometimes things in life happen that make repayments impossible. That's why banks exist in the first place. So I'm not sure what I could do if a friend came to me in need of a loan. I'd prefer they go on a site like Prosper or Lending Club, and I'd give theme a loan that way, prob.

Steve said...

Ditto using Lending Club. Way better than Prosper. I've had no defaults so far with Lending Club.

Budgets are Sexy said...

i lent my uncle $100 and have yet to see it 9 months later, but i'm glad i gave him a chance :) he's burned everyone else in our family, but i thought this time would be different - oh well.

on the other hand, i've lent my brother $1200 in the past and gotten that back though! as for friends, i think most i ever gave out (or was asked) was like $20 bucks here and there - and i probably got it back 50% of the time, but no worries.

i haven't and prob. won't test proper.com and the like, but i'll give a person a chance every time :)

TStrump said...

The most I've lent is a couple of hundred bucks but I always got it back.
Now, family - well, that's another story ...

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