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How to Safely Lend to Family?

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Spanning Tree

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19 April 2008
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How do I safely lend money to a family members? I have lent thousands of dollars before to a family members and never saw it again. Another family member is having problems and I want to help by giving a zero-interest loan, but how can I do this safely?

I was told by someone that if I write up a contract (e.g. using something like this as a template) the courts will not honor it as a contract because it is between family members.

How can you safely lend to family members?
 

hmm it's unsecure loan/creditor if you look it that way , at the end of the day very hard to enforce even if you have some sort of contracts....are you willing to seize their cars or kick them out on the street

I usually give and help out rather than lend if they are in financial trouble
but part of the condition I teach them about debt and various timeless simple money advices and hope they learn and don't get into trouble again and probably get rich in the process if they are a willing participant

Teach them something if you going to hand them a large sum .. I always like the advice

"give a man a fish you feed him a day..tech a man to fish you feed him a life time"
 
The only way to make sure you get all your money back is by having security over some of their assets in exchange for the loan.

If you have security over their assets you rank higher than every single other creditor in the case unfortunate case they go bankrupt.

Of course the problem here is they may not have many assets, or you may feel uncomfortable forcing a sale to get your money back.

If you do lend them the money you should tell them before hand that you are willing to lend them the money as you want to help them out but if they do not pay you back you WILL SELL the assets to get your money back so they know what is going on.
 
Personal opinion is I will never, ever lend to family or friends. Been there and been burnt big time.

What would I do? Either give them the money and consider it nothing more than luck if you ever get it back. Or alternatively help them arrange a loan from a bank. Anything that involves you expecting repayment is asking for big trouble in my experience.
 

I agree with Smurf. When money gets involved between family or close friends things can get pretty ugly. Seriously consider the alternatives that Smurf has posted!
 
Agree 100% with Smurf. Just not worth the possible rift in the relationship if something goes wrong.
I've done this in the past intra-family and it has been fine but with the best of intentions something unexpected can happen e.g. someone becoming unemployed and unable to repay, and you have a really touchy situation.
 
It depends. What is your family like?

In my family we don't lend money to other family members, we give it. If one of us is in financial difficulty, then there is always one or more of us in the immediate family who helps out. Getting the money paid back isn't expected, because we know that they would do the same in return. To us, that is what families do - help each other.


If this isn't your family, then I would consider what Smurf said.
 
ZimpleMoney.com is a good tool. There are free products that you can use to manage loans between known parties. They have electronic transfer tools in the US and will have them available in Australia once they have a bank or other partner.
 
Spanning Tree

Had a thought.
Why not give them enough money to pay for the interest for 5 years and let them take out the loan rather than risking your capital?

You can then also see how much you will lose even if they did pay it back.
 
never lend money to family or friends.

just give advice on how to save money.
 
Knobby22 said:
Spanning Tree

Had a thought.
Why not give them enough money to pay for the interest for 5 years and let them take out the loan rather than risking your capital?

You can then also see how much you will lose even if they did pay it back.
Click to expand...
I'd assumed (perhaps quite wrongly) that the reason the loan was being considered was that the family member wasn't eligible for a loan from a more conventional source.

If they are eligible for, e.g. bank loan, then all the more reason not to even remotely consider it imo.
 
I remember reading some advice on money for your children when they get married and want to buy a house.

Rather than give them money, provide a loan secured on the property and make it payable on demand. Then if your daughter/son in law turns out to be unsuitable, you can demand repayment and your in-laws do not get half of your money.
 
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