Am I wrong?? I am not rich, we live with little savings in the bank that easily can be gone in an emergency.

I

Never loan what you can not walk away from.

Put everything in writing. This is not for a lawsuit, but so everyone is clear on the terms.

If the issue is financial distress, discuss how to avoid it again.

Take a honest hard look and determine if your actions are helping or enabling.

Have charity. Make sure you do it if you can. But be careful because something like this can seriously damage relationships long-term. And if you can’t do it, don’t! Just don’t! Don’t put yourself in poor position if you really can’t help.

I’m going to carry back a real estate trust deed and want charge the minimum amount I can charge without running afoul of the current umputed interest rate.

Thanks,

Bob Thacher
760/365-1100

I have been on both sides, so this post was also based on personal experience. I know that I felt bad getting a loan with my mom as a co-signer. It has been completely paid off by me and I was never late, but I still felt bad having my mom on the loan. I had seen my mom burned by a few for her generosity and I want to not have that disappointment.

I have gifted small amounts for true emergencies and personally find it better than a loan. I think you know what’s right for you and at the same time protect yourself.

@Katie: I haven’t heard of this law, but it does pay to check out for yourself the rules in your state.

I agree with those above who say you have to think of any “loan” as a gift, not expecting to get it back.

I heard just recently about a bank that is actually set up to facilitate person to person loans like this. Don’t have any experience with it though.

Virgin Money Personal Loans.

I think that may be another case of business law being taught by a non-lawyer…because I never learned that little tidbit in law school.

Regardless your actions allows you to sleep at night and that is the most important thing.

We were slightly concerned she may not use the money as directed, but my husband–just having finished a business law class–informed me that if we were to write a check directly to the creditor to pay her debts that would make us liable, in a court of law, for the debt should she default on the loan. Our signature and check directed toward that loan would indicate we were able and willing to be responsible for the entire debt, should it come down to it.

We made the check out to her.

Personally, I go by the rule that we don’t ever loan money to anyone. If we ever give money to family or friends we let them know up front it is a gift. They should not concentrate on paying it back. There is no time frame and no expectation.

The truth is it is very hard to realistically get to that point emotionally. In a few rare cases, my wife and I have given money, because we were able to fully commit to giving a gift and not a loan.

This principle has also kept me from loaning money several times that we normally would have. By now a lot of my family and friends know this principle and would only come to us in true emergency situations.

Unless there is a true emergency, it is usually better for the personal to struggle through the situation anyhow. It will help build character and determination to turn around their financial life.

Additionally it should be noted that the IRS doesn’t allow for interest free family loans – you have to charge at least the AFR rate, or the imputed interest (that you didn’t charge) is a taxable gift.

I mean if they can’t help themselves right now, how will they be able to pay you back when they are deeper in debt?

Also, offering non financial help is best but really most people just like to throw money at the problem.