YBR presents MYOB /// Family Loans

Sunday, December 06, 2009 Written by Alecia D. /// Find in The Wrap Up

I have always been under the assertion that friends/family and money, “Don't MIX”. If you are fortunate enough to have never been on either end of a family loan situation, I'm sure you know at least one person who has.  These sort of "informal" loans always seem to start out the same- Friend/Family Member A tells Friend/Family Member B that they've fell on some hard times and could really use some help.

The “loaner” begins to think about all the things that could go wrong with this situation for a bit.  S/he mulls over the resentment, animosity, and hostility that could result from lack of repayment, but as they listen intently to the requestor and see the sincerity and the pain in their eyes they decide to go against better judgment and give in to the loan request.  This is often where the trouble starts.

According to expert financial planners, “intra-family loans can lead to trashed relationships, shattered finances and even trouble with the IRS.” (Source)  I don’t know about you, but if lending $1,000 to my cousin “Pookie” so that he can pay his   car note means that I can potentially be in trouble with Uncle Sam, then I definitely will have to pass.

Although, you may stress to your loved one that your act of generosity is just a loan and that you are looking for repayment as soon as possible, it often never plays out that way in real life.  I'm not sure if family members and friends are just hard-wired to take loans for granted, but for whatever reason- issues with money is the leading cause of family strife and broken friendships.  We all can recall borrowing or lending a few dollars here and there, however, there are some instances when much more than that is requested.

I'm not trying to imply that I've never lent/borrowed money from a friend or a loved one, because that would simply not be true.  Of course there have been times when the reality of my loved one's circumstances set in and I've lent them what I had to in order to help them when they were in need.   Within a few days, the funds were returned in full without my having to ask them for repayment. Ahh, those are the good times.  I also remember the not so good times- I remember lending a close friend of mine a substantial amount of money when she was going through a financial crisis.  Although she did eventually pay me back, I had to wait long past the agreed upon due date that we had agreed on initially. During the waiting process, I remember feeling upset when my friend would show up with new Gucci bags or tell me about the trip she was taking out of town with her boyfriend. How exactly are you able to avoid all of this? I thought to myself.  Needless to say, the subconscious resentment that I harbored for my friend after a year went by post my repayment date began to seep into our interactions.  Once she began to internalize the vibes I must have been giving off, she began to retreat and there was a long period of time that our relationship was strained.

So what’s the moral of the story, you ask? Don’t lend family and friends money! LOL, If only it were that simple, right? In all seriousness, we obviously cannot go through life acting like a Scrooge, but thankfully there are ways to minimize the issues that may arise.

1. Be selective with who/when you lend money.  Make sure you don’t become known as the family bank.
2. Don’t floss your funds around for the world to see.  It’s ok to put on a “broke” front sometimes.
3. For larger loans, consider a third party loan/contract service. Check out this link for more information.

At the end of the day, use your best judgment. As long as you are open and honest with your family member and yourself, you shouldn’t be in too bad a shape.

-Alecia D.