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Lending money to someone you care about? Ask questions!

Monday, October 14, 2013

Not too long ago, I blogged about how anyone should have to think like a donor if he was to be a lender of money. 

If we are not comfortable with donating, say, $2,000 to a charity, then, we should not feel comfortable lending $2,000 to anyone! To me, it is quite simple. Why complicate things?



However, a friend who took my advice to heart, quite surprisingly, told me that he lent $10,000 to a cousin recently. Now, he worries that he will not see his money again since the cousin has been borrowing from other relatives as well in the last few months.



I asked him why does his cousin need to constantly borrow so much money. He said he didn't know. Huh?

Why did he lend $10,000 to his cousin if he did not know the reason why the cousin needs to borrow? "Oh, because we are family and we are very close."

I told him to write off the debt right away. He struggled with this idea and I don't know if he has managed to do this.

It makes perfect sense to write off the debt and it is consistent with my belief.

Imagine that the money has vaporised and gone to a better place. If it should come back one day, well, go celebrate!

I am not heartless. I quite understand that there could be certain situations when we might feel obliged to lend money especially to family members.

However, as a prospective lender of money, I have the right to know why a loan is required and why the would be borrower is short of money.

Of course, knowing the answers to these questions will not guarantee loan repayment. Then, why ask the questions? 

Well, if you are asking me this question, then, my earlier point about thinking like a donor when lending money is lost on you.

Just throwing money at a problem might not make it go away. If we understand the problem, we might be able to offer a better or more permanent solution. 

If we truly care for the borrower (why would we even contemplate lending money to the person, otherwise?), we would ask the questions that need asking. 

There is nothing to be embarrassed about.

Related post:
The difference between lending and donating.

15 comments:

Unknown said...

im surprised u even use the word : prospective:
in my experience, no one wants to lend money... money makes u lose a lot of friends, especially when they even think u want to borrow from them


AK71 said...

Hi Unknown,

Well, you know what they say about "a friend in need is a friend in deed". :)

This is a very grey area and I can only speak for myself. I have a mental list of people whom I would lend money to if they should approach me. ;)

sillyinvestor said...

About a decade ago, my sister quit her job and wanted to borrow a few hundreds from me. I did ask why, u can't remember the reason, I think it's a overseas retreat, and I said no.

I really regret it till this day. I was too young then. She looked sad, never say anything but went on with her plans. She redeemed her insurance at a loss to pay for her trip. Years later, when I am more mature, I realize she is going through a rough patch, unfulfilling job, relationship problem and future anxiety. I was a miser.

A few years later, she switch to become a financial advisor, those independent insurance agent not tag to any company. She is one of those few that really care for her clients, not pushy and find what products her client need. As u may know, good FA earn horribly in the first few years. She ask for a loan and second time. This time round, no questions asked. I said, dun worry about returning me the few thousands, focus on your work and pay me back when u are ready.

She paid back within a year. Kinship is dearer than some money one can afford, especially u know the money is for a need and will be put into good news. There is no need to ask questions, it could be embarrassing to answer..

sillyinvestor said...

The other extreme is a relative of mine. He borrow money to pay the debts due to his gambling.

His mum cleared his debts for all those that he borrowed money from. He did not repent, he claim he owned 50k, I was not surprised. I know of many who bet on soccer losing that much. The next time I hear it, it was 200k. I said to my wife, he need help and need to learn his lesson. She agree, but her mum does not think so. She continue to sponsor his car maintainence and the likes. I say, well it's their karma. It went on like a bottomless pit, it became 500k then 700k, enough to pay for a condo...

I used to pity the mother. I don't now. She turned a blind eye to the problem. I heard there is really no more debts. I hope so. I have a nagging feeling it is a con job of his son too. Hope I am wrong, and they live happily ever after

AK71 said...

Hi Mike,

Thanks for sharing your experience. In both cases, blood is thicker than water. :)

However, if we ask the questions that matter, very obviously, the reasons for borrowing in both instances will tell us whether we should lend the money or not. Of course, whether we would lend or not is something else.

So, questions that need asking should still be asked. :)

veronika said...

There is only 2 ways to deal with people asking for loan.

A) Say no and end the conversation

B) Say yes and ask 2 questions:
Q1: When will you repay?
Q2: How will you repay?
Then, lend half the amount asked for.
If they are desperate, they will take it.
In any event, consider the loan as written off anyway.

Asking for the purpose of the loan only invites the borrower to put on a show.. and I am certain they would have rehearsed the story. With lots of tears and sobs.. even evoke dire health issues of cancer etc.

Still, option A is the best..

NO LENDING.

AK71 said...

Hi Veronika,

Very good points made. :)

Well, if the person I am willing to lend money to should lie to me in order to get a loan, I think that the money is well spent. I would write off the debt and the person.

AhJohn said...

A friend gamble too, borrow much money from many people, very sad. He ruin his life and affect others too.

AK71 said...

Hi Ah John,

I gamble too.

I buy 4D once in a while. $1 Big. Never more.

I buy TOTO once in a while when the prize money is $3 million or more.

I buy 10 Big Sweep tickets from an old uncle who comes knocking at my workplace every month.

;p

AhJohn said...

Lending money is like investment too. Lend little if not sure.

AK71 said...

Hi Ah John,

Once, a classmate wanted to borrow $20K from me to help pay for a car. I remember it was a few years after graduating from the university.

I had the money but it was really a big deal to me then. I offered $2K and asked him to try other sources for the balance $18K. He said he didn't need $2K from me and that he had $2K. -.-"

AhJohn said...

Borrow money to buy car? I will reject.
Btw, I buy TOTO when $3m too :) must be very lucky, but anyway it's a dream.

AK71 said...

Hi Ah John,

Well, he was one of my closer friends in university. So, I was willing to lend him a small sum of money.

Gambling is not necessarily a bad thing, actually. Hahaha... I wrote a piece in the early days of this blog: Is gambling a bad thing?

yeh said...

i dont like to borrow money from others and dont think others will lend to me..
so that is why i never borrow money from others.
i have lend money to siblings, but they never return me.
i write off that amount and dont think my siblings will return me.



AK71 said...

Hi yeh,

I don't like the idea of borrowing money too. As for lending money, well, this is something I have to deal with once in a while.

Sometimes, people do genuinely have difficult circumstances not due to vices and need a bit of help. If they are people I care about, I would volunteer to help. If they are people I don't really care about, that's a different story.

Whatever the case may be, I tell myself to treat the loan as a donation to charity.

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