Tan Kin Lian's Blog: Lend money to a friend

Thursday, July 08, 2010

Lend money to a friend

Dear Mr Tan,

One of my very close friend has seek to me on lending him $5000. I have agreed to help him on this. but i have not pass him the money yet. even though he is a very close friend of mine, i still do have a concern on if i can get back my money as i have experience lending someone money and unable to collect it back.

Is IOU a proper documentation to ensure if i can get back my money if anything goes wrong ? If IOU can be used, what kind of format would I have to draft out ? Is there any other proper documentation that I can use to ensure i can take back my money ?

REPLY
Here are my views:
1. If possible, avoid lending money to a friend.
2. If you have to lend money, be prepared that it will not be returned
3. Have a document (e.g. IOU) to acknowledge that the money has been passed. Write down details of the repayment.
4. Ask for monthly payment of interets or interest plus principal. This ensures the discipline of repaying back the money.
5. Here is another alternative. Ask your friend to borrow the money from a cooperative society, with you acting as guarantor. If the borrower does not pay, you will have to pay as guarantor. But the lender will try to collect from the borrower first. This is still risky to you, but you do not have the hassle of chasing for repayment.

24 comments:

Anonymous said...: My priciple is I would never lend anyone money unless I am preapred internally within myself that it is not a loan but a gift.

Before I have this principle, I lost many friends when chasing them for repayments. So whether they are relatives or friends, this would be the best principle so if you can not consider the money as a gift, dont lend.; July 08, 2010 2:08 PM
Anonymous said...: I agree strongly with the first and second views of Mr Tan. However, I disagree with the rest.

From my personal experience never ever lend money to anyone including relatives, friends, siblings, etcs.

If you want to lend your friend the money because you treasure the friendship and think that by lending him the money will strength and prolong your friendship, then I advise you to think again. More often than not, this actually marks the beginning of the end of the friendship.

From my experience, 99.9999% of the time the moment money is involved that marks the souring of the relationship between the borrower and the lender. When you don't lend him the money, he will think that you are not his friend and an ill feeling develops. On the other hand, if you lend him the money the chance of him returning the money is 0.000001%. Then when you start asking him to return the money he will start avoiding you and an ill feeling develops.

This is different from the case whereby you know that your friend needs financial help but he does not ask you to lend him the money. Instead you voluntarily "give" him the money knowing that he may not return you. If he returns you the money when he can then that's a bonus to you and your friendship may be stronger.

Besides, I think you need to know information such as why he needs the money, what kind of lifestyle was he living, etcs. You sweat and save your money and lend it to someone who has been spending like no tomorrow, IS IT WORTH IT?

If the friendship ends because you didn't lend him the money then the friendship is weak to begin with.; July 08, 2010 2:38 PM
Anonymous said...: Please do not lend $$.
If you do, be prepared never to see both money and friend ever again

Not that he runs away.. you might want to avoid him too!!

I have learnt very expensive lessons.
Not once but at least 6x. each from $500 to even $10,000.. they will tell you that you have lost that same amount investing in shares.. so what is the difference lending it to them?

Yeah, a tempting logic.. but with shares, you get a chance to sell off and get some residual $$.. with borrowers.. just a simple verbal promise.

written IOUs can be used as evidence in court.. but would you go through all that to recover $10,000 ? The court may not even award you anything.. after waiting for 2 years for your case to be heard!

Final point: DO NOT LEND ANYONE ANY MONEY!! ( including your spouse,child, etc in such relationships.. you have to treat it as a gift ); July 08, 2010 3:00 PM
Anonymous said...: Prehaps collateral loans?; July 08, 2010 4:12 PM
Anonymous said...: Every time I lent money to a friend, I lost the friend and the money.

Listen to Mr Tan, try to avoid lending money to a friend.; July 08, 2010 4:29 PM
Anonymous said...: if one wants to get the money back via legal method, there is a period whereby one needs to do if not, after that, there is no way to get back the money, even with the IOU. cant remember the exact period, think is 2 years only. just last month there is a tv8 show on lending money to friend dispute. best is don't lend. money lent to friend is as good as gone in most cases.; July 08, 2010 5:11 PM
hosingping said...: Never lend money to your friend. and if you really have to . prepare to be written off. dont forget becos of $, there will be no friendship.; July 08, 2010 5:29 PM
Anonymous said...: 讲钱伤感情.be prepared to loose the money or if you do'nt lend to him, you may loose the friendship.; July 08, 2010 5:53 PM
Anonymous said...: Money can even be a source of disputes and even a breakup of blood ties, what more between friends.

So for friends who want to borrow, better don't lend at all. You can lose such friends (maybe don't even need to be friend in the first place) but don't lose your money.; July 08, 2010 7:31 PM
Anonymous said...: Why lend money to friends, just give as a gift, as you would not see your money ever again, just give as for charity if the gift is for a good cause, but if money given is for gambling, then just
drop that friend, as gambling is a hopeless cause.; July 08, 2010 8:35 PM
Anonymous said...: I would not say dont lend as you friends may be really in need but instead of lending, give it as a gift. Likely the mooney will be returned.; July 08, 2010 10:21 PM
ah mun said...: I am not surprise by almost all the comments that are against lending money to friends.
I have been a "victim" too, more than once. But then what are friends for ? There are numerous songs that talks about true friendship, "That's what are friends for" & "You've got a friend" to name two.

A friend in need is a friend indeed.
Nobody likes to borrow money from friends or relatives. It is a very humbling situation and a big lost of face in our culture. In the old days, that's how the community helps one another.Not now. There are banks, co-operatives, credit cards, credit lines & of course loan sharks.

If you need a friend to sign an IOU, then it is better not to lend. Friendship is always base on trust. If you cannot trust, then there is really no true friendship to begin with.
I am not saying that one should just freely part good money to any friend. If your friend is truly your Friend and he is in need, you should extend a helping hand.; July 08, 2010 11:04 PM
Anonymous said...: i have a bro who wants to borrow money from me and my elderly parents to buy his second house - a freehold 3 storey bungalow about 1.8million, my elderly parents are kind and want to lend him e money, what should i do in this case?; July 08, 2010 11:18 PM
Anonymous said...: my bro wants to borrow $ from me and my elderly parents for his 2nd house - a freehold bungalow..my parents are kind and want to lend him the money..i think i wont interfere..if it you, what will u do? to lend? to stop my parents from losing their retirement $?; July 08, 2010 11:22 PM
Anonymous said...: It's cruel - this is a saying "when you laugh, the world laugh with you; when you cry, the world let you cry alone".

Personally, I don't lend anyone a loan, because I myself do not have available cash to loan in the 1st place (one hand in, another hand out into investments).

But, taking a look at the another angle of the borrower: - "If you are the person who needs the money, then having friends / relatives etc to turn their backs against you, is really a very depressing feeling."

So my advice to any borrower is:-

Two options available:-

(a) GE Money / James
-----------------------
No need collateral items for a loan.

(b) Traditional Pawn shops / Maxi-cash
-----------------------
Collateral Loans - Jewellery, Watches, gold etc

(c) Cash Converters
-----------------------
Sell off assets to raise money.

If really really no money and no collateral items to pawn / pledge - then prehaps have to rely on GOD's hands for assistance.

So the moral of the story is to build up a rainy day reserves - to dwell on when emergency comes knocking. In cases where reserves is not enough, then need to liquify personal belongings - by pledging the assets (e.g. Rolex watches, gold jewellery) as collateral loans etc.

GOD bless the man.; July 08, 2010 11:26 PM
Anonymous said...: Civil claim - file a writ to the subordinate courts within 6 years. But be prepared to let the lawyer take the lion share away.; July 08, 2010 11:27 PM
Anonymous said...: In this case:
1) If you truely have spare cash, then you could lend it BUT expect to loose it and suggest a monthly repayment plan
2) You could loan a lesser amount BUT again expect to losse it.
3) Or, sorry I dont have spare cash to loan you.; July 09, 2010 9:21 AM
Anonymous said...: Under any circumstance.... DO NOT LEND MONEY!!

Only as a GIFT will there be true help..

PLEASe DO NOT LEND MONEY!!

If help is required from you, offer help in terms of time, idea or your listening ear.. these are far more effective and lasting then pure cash.

Giving money is exactly what our society is doing with charity.. no time to be physically involved, but giving cash comforts the conscience. This is wrong.

DO NOT LEND MONEY!!; July 09, 2010 11:03 AM
Tan Kin Lian said...: After reading all the comments, my views remain the same as I have sent to the person asking for my help.

If possible, avoid lending the money. But if you have to, and you are the best judge of your friend's character and need, you can have an IOU with repayment agreement. But, in the worst case, be prepared to lose the money.

It is easy to turn down someone with a "no", but that person may have to depend on loan sharks and get into a worse situation. What are friends for?; July 09, 2010 11:22 AM
Anonymous said...: "What are friends for?" Answer - an ATM?

Once, a friend asked me for a loan. I asked for the purpose of the loan.

He said that if I were a friend, i would not ask so many quetions and just give him the money.

I gave him the money and said goodbye. That was the last thing I did for him as a friend.; July 09, 2010 12:31 PM
Anonymous said...: Money is immaterial - don't look at it too seriously. It is a tool to achieve certain material objective and can be use to help people too.

I don't know why all the comments exhibit selfish, "me, me, and me" kind of thinking. What are friends for, if such friends cannot even help you in need.

It is not easy for a person to ask for help and seek a loan. Have you ever been poor before? If you have the means, then by all means, help another friend in need and you may even save a life.

I have lent money to my siblings who got married and bought flat; I have lent money to friends who were retrenched and used up their savings. I always tell them to return me when they are ready. So far, all of them returned me the loan. A helping hand to them means a world of difference. To be able to give is the greatest gift of life.

My advise to all: try to be a little more generous, a little less selfish and help others as you help yourself.

An insurance agent.; July 09, 2010 3:06 PM
Insuarance spy said...: You probably lent small sums like $50 or $100.

Your risk management was good.
In my case, I agree with all who says do not lend.
lending $50 is no problem.

it is the regular asking for money and treating you as an ATM and making you out like a fool.. and yet no repayment in sight.. I rather buy insurance.. at least i get to see half my money after 25 years!!; July 10, 2010 7:37 PM
ah mun said...: #Insuarance spy said...
You probably lent small sums like $50 or $100

Well, it can be any amount, but I don't think those who commented here would be talking about such small change in today's context. If a friend comes to me for $50/$100 loan, I think he has got a bigger problem. I would ask more questions & help him within my means.

Nobody likes to be taken advantage of. I don't want to help blindly either. If a friend is in need, whether it is for $50 or $5,000, if you can help, by all means help.

To get government assistance is not easy. You have to be in very dire circumstances.

I like your last statement "I rather buy insurance.. at least i get to see half my money after 25 years!! ". I bought a 21 years endowment & on paper, I was supposed to get $90K, but somes years back, the company sent me a statement saying I would probably get $60K +. I gave it up 2 years before maturity & got back about $40K+ to roll the money. I reckoned I will make more money than putting in another 2 years of premium & yet may not get what they projected. I sacrificed $18K but got back more with my investments. Why do I do that ? Simple, I do not trust that company anymore. I think they needed the US gov. to bail them out.; July 11, 2010 12:27 AM
Anonymous said...: Hi all,

After reading all the above comment. I was wondering if there is there any legal action we can take if the money has already lent out? I had lent a sum of money to my friend's landlord for his office rent. It is issued in cheque. Your advise will be very appreciated. Thanks..; November 07, 2010 2:44 AM

Thursday, July 08, 2010

Lend money to a friend

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