A
female
age
30-35,
*anderlust92
writes:My 24 year old boyfriend took out a loan to get some repairs done on his car, without realizing that he would have to change his insurance to be eligible for the loan. Now he's paying double what he would pay for car insurance AND an extra $50 per month to pay for the loan on an already super-tight budget of less than $800 a month. (SSI) I'm 19 and a full-time college student. I work a very limited part time job and I have some money in savings from awards I won last spring. He's asked me to loan him my savings so that he can pay off the loan right away and return to his cheaper car insurance, effectively saving him $120 a month. I'm thinking if I do loan him the money ($500) that I'm going to draw up a contract stipulating that he pays me $105 on the first of every month (the day he gets his check) until the loan is paid off (so 5 months, at 6% interest). Does this seem like a good idea? Am I being a bitch by being so formal about it and asking him to pay interest? Or should I stay away from loaning him the money altogether?
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reader, anonymous, writes (22 December 2011): Oh I forgot to mention one of the most important.
In any loan to a friend or lover the amount should correlate to the years (times 100 bucks) they've been your friend up until 1000.
In other words 100 for 1 year, 200 for 2 etc. To me that's a fairly good time scale.
A
reader, anonymous, writes (22 December 2011): How long are you with him OP? It does matter by the way. 5 months is a long time in a relationship and if it's not already a proven long term relationship in the timescale of years then the risk is massive. The risk is huge no matter what because he's crap with money.
It's your money and the way you speak about this you are going to give him the loan no matter what people say. I think in those circumstances yeah a formal, witnessed agreement would be a good choice but in all honesty chasing him down should he ever fail to pay that back would probably end up costing you so much time and effort as to not be worth trying.
I can only echo what some of the others said. If you can afford to take a 500 dollar hit and not get it back then by all means go ahead.
Now your boyfriend has already shown himself to be crap with money. Taking out a loan to pay off another is stupid, yeah it is because what he's doing is asking for a personal loan from you, which means he is free to now pay it back or pay it back late, otherwise he'd just get a loan from a bank, oh that's right they won't loan to someone who is such a high risk and they will take the time to do checks on him. Taking out a loan and being on SSI means he's a guy that's living beyond his means. He's on a tight budget yet he takes out loans to repair his car, and is now stuck with more expensive insurance because he "didn't realize" it would cost him more. Nothing you have said has made me think this is any way a wise decision. If he can't pay off his current one which is literally only a mcdonalds meal for the two of more expensive per month than the one you propose then what makes you think he can/will pay you? You're looking more at a situation where in the five months of this he may well skip a payment, or may ask you to let him off some of it because times are tough.
This is not a matter of being a doormat nor is it a matter of trust. This is a business transaction plain and simple. If it was a favour then you wouldn't feel the need to formalize it but seeing as you do then you should consider all of these carefully.
I have a few rule when it comes to this.
1. Never loan money to a person to pay off their loan. Fairly logical really because if they can't pay that themselves then they can't pay me.
2. Never loan to a partner unless we're living together and share all life's expenses.
3. Never loan money to a person for a luxury, or something they could have saved up to pay for.
4. Never, ever loan money that I can't afford to not get back.
My girlfriend had to spend about a year paying back 4000 on a credit card she blew on clothes and other luxuries. I have a nice nest egg put away and could have easily paid that off with little fuss but she needed to sort out her own finances, she needed to get her head in the game and she needed to learn how to control her money and put forward planning into it. She worked hard and paid off that money and proved that she would pay back loans when she had to and now I have no problem loaning her money because she doesn't break any of the above rules.
I think you're taking a massive risk. Loaning to person with a poor financial situation as a bail out is never a good idea, that kind of person wouldn't need your money if they were smarter with theirs.
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reader, Fatherly Advice + ♥, writes (22 December 2011):
 Wander,
1.3% is excellent for savings. 10% is great for a title loan.
I am so happy to see you say that you are not a doormat. Stick to your guns on this.
Rain, I don't know where you got 10% to boyfriends but it sounds pretty good for an unsecured loan to a friend.
To every one who wouldn't charge interest to a friend: This is a guy who couldn't come up with $500 on a credit card. In other words a high credit risk. He is going to pay for the privilege of using someones money. If he hadn't had the title to this car he would be walking.
People who are smart with their money have money. People who loan it to friends don't get it back.
FA
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female
reader, bunnyblueeyes  +, writes (22 December 2011):
 Wow. Interest. Really?? That's fairly harsh.
If that's your plan I wouldn't bother. I should think he'd be fairly upset that you're plannuing on charging him interest.
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reader, wanderlust92 +, writes (22 December 2011):
wanderlust92 is verified as being by the original poster of the questionStill haven't made a decision, but to everyone freaking out about me requesting interest: The money is in an account with a 1.3% APR, so if I take it out and give it to him I'm losing not only the purchasing power of the money over the 5 months, but the interest earned over that time as well.
Incidentally, he's also paying about 10% from the bank, so 6% is 4% more than what I'm earning and 4% less than what he's paying.
My grandpa used to lend money to his daughters like this, because it -should- be a win/win situation for everyone.
I'm his girlfriend, not a doormat or the money-tree.
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reader, C. Grant  +, writes (22 December 2011):
 If you're serious about making a loan, with interest, that you expect to have repaid, then you go to a lawyer and have a contract drawn up and have it witnessed and notarized. That's the only way it's enforcible in a court. And all of which will cost you more than any rate of interest you can charge. And trying to collect will cost even more.
That's all by way of saying that you shouldn't be lending him the money, because it's really giving it to him, and you can't afford to give it to him. There's no practical way you can guarantee you'll get it back. Don't even think of going there.
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reader, PerhapsNot +, writes (22 December 2011):
 I find the interest part excessive to be honest. If I were to ever loan anyone money, I would NEVER expect that person to pay interest. To me that's just being shitty. I am a friend, not the freaking bank!
Secondly, you're being put in a very uncomfortable position. The fact that you're working part-time and a student AND he is asking you for money....It just sounds bad. Doesn't he have parents or any relative to help him out financially? When you know the other person doesn't have much money and you're asking them for money - well, it's just a shitty thing to do.
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reader, anonymous, writes (22 December 2011): He should go back to the bank and arrange a loan without the car as security. He'll pay a higher interest rate. But since the car isn't security for the loan he won't need to insure it at the higher insurance rate.
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reader, So_Very_Confused +, writes (22 December 2011):
 I'm going to advise you that the INCOME from the loan the month he gets it should stop his SSI btw... if they do a review and find the original loan he will OWE money to SSA.
a second loan will cause an additional overpayment.
you can draw up the loan contract but you can't really enforce it.
my dad has been known to lend money with a contract. in the end he released the person (my aunt) from the last 5k of the loan....
only loan money if you can afford to not get it back.
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reader, The Realist +, writes (22 December 2011):
 Generally it is a bad idea because money ruins relationships fast. A contract is a must if you do loan him money no matter what kind of guy he is.
If I were in your position I would not loan him the money. Being a university student myself I know how important the money is and I wouldn't take the chance of the person not paying me back and then it having to go to court.
Tell him to go to parents or another family member but don't put yourself on the line to possibly lose the relationship over $500.
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reader, RAINORFIRE +, writes (22 December 2011):
 WOW your making him pay interest im curious to know what your majoring in wall street banking? Well i think you will make an excellent Banker. I dont see anything wrong with your plan you seem far more mature and financially savvy at 19 then your BF. Just make sure that contract is flawless I want to see you win your case if you have to take him to judge judy.
LOl %6 I gotta kno where did you come up with that its usually a customary %10 for BFs but six is still more then your getting in any savings account.
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reader, Fatherly Advice + ♥, writes (22 December 2011):
Never lend a friend more money than you can just give away. As a matter of fact, as soon as you write the check, consider the money gone. This is the relationship part of this advice. If you want to remain friends this is what to do. If you can't afford to do this then just say no.
Now for the financial part. If he can't make the 120 payment, he won't make the 105. Drawing up papers is always the right thing when dealing with money. It's not B*****y, it's businesslike. 6% is likely 4 times what you are making on the money in savings, and about one forth of what he could qualify for commercially. All around a fair amount to ask.
So, to summarize, "neither a borrower nor a lender be". If you are going to lend money get it in writing, be fair, and use a payment schedule they can handle easily.
FA
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