Lending to a flakey friend
Question: Is there anything wrong with asking a good friend to secure the loan I'm giving him with the title to his car? Tom really needs the money, but he can be pretty irresponsible, and I don't want my $2,500 to become a gift.
Answer: In a word, No. And in two words, Absolutely Not.
Lending a flakey friend that kind of dough is a very generous thing to do, and insisting on some security in no way dilutes your generosity. After all, nowhere is it written that, in lending people money, you are required to make it as easy as possible for them not to repay you. And neither is it written that at the Bank of Friends and Family, the borrower gets to set the terms. If Tom is unhappy with the arrangement you propose, he can always try to find a friend or relative —- or, of course, a real bank —- who’ll offer him a better deal.
That said, we suggest you not secure the loan with his car. Why? Because if Tom’s as irresponsible as you say, there’s a good chance you’ll end up having to choose between two equally unattractive alternatives: taking possession of your buddy’s car (and there goes your friendship) or ending up with nothing.
Instead, consider asking Tom to give you some collateral to hold until he repays you: a fine watch, say, or his prized Stratocaster -— something of sufficient value to give him a real incentive to pay off the loan. Because you’re right: You don’t want to bet $2,500 on the good intentions of an irresponsible friend.
Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.
Never loan money. Period. Why? Because when a friend or family members asks for money, there is a much bigger financial problem that is probably not being addressed. Why does your friend need $2500? No job? Credit card bills? Why doesn't he sell his car and take the bus? Ditch the cell phone and cable. Get an apartment with a roommate rather than a house. See what I mean? Your loan of $2500 is only a bandaid that does solve his REAL problem. If you're a real friend do this: offer to buy some groceries if he need food; offer to let him stay with you for a while, so he doesn't have to sleep on the street. That is being a real friend.
I have loaned money to both my brother-in-laws. I told my wife that, look, if we have decided to give them this amount of money, don't fret over it if it does not return. I have received 50% of my money back from one of them, I have yet to receive the rest and there is no clear plan how he will pay back. I do not like to bring up the topic because that gets my wife worried. So I agree that if you lend to your relatives, it's more of a gift, or don't lend at all. Though they may have a good intention to pay the money back, people just get too comfortable and do not have any sense of urgency. You are seen as someone who can afford to live without that amount of money – in short, if you gave it away without any collateral, you are wealthy! What's the hurry. 
I lent money to a friend 3 or 4 years ago, against the advice of my girlfriend, and have yet to receive any repayment. I knew when he asked for the money that I would probably never see it again. However, I grew up with my friend and consider him family. I felt the need to help. The bottom line is, when you lend to a friend or family member, you should consider it a gift – plain and simple. If it returns, then think of it as winning the lottery and treat yourself. Never lend money to family or friends that you'd feel uncomfortable losing.
Based on my personal experience, I live by this saying:
"Never loan money to a friends. You will lose both your money and your friend."
If you can and are generous enough to give them money, give it to them as a gift and don't expect it to be paid back. A gift doesn't have to be as much as they ask for — any gift would show good will on your part. If you can't afford giving them a gift, just explain that you can't afford it right now, and don't feel guilty about saying no. You don't need to make excuses for not giving them money.
DEPENDS ON YOUR FINANCES!! GOT PLENTY?? IF HE IS A "REAL" FRIEND, JUST GIVE HIM THE MONEY UNTIL HE GETS ON
HIS FEET!! THAT IS WHAT A REAL "FRIEND"!! WOULD DO!!!
Where was all this good advice last month? I just loaned a friend $2500 last month against my wife's recommendation. When I asked him for the money on the due date, he told me he didn't have it, but promised he would pay as soon as he got it. Now I am getting pretty angry.
If he's flakey enough to have to ask you for the loan, he's too flakey to merit getting it from you. I think the friendship is doomed from here on out – if you give him the money, it will end when he fails to repay it. If you don't give him the money, he will resent it, and you probably deep down inside are annoyed with him for having the cheek to ask in the first place. Friends should never hit up friends for money!
I don't LEND money to anyone.
I did that once and spent a year fighting about it with my wife and son. Finally forgave the unpaid balance as a present because it was too much aggravation.
Give the guy the money if you can afford to make it a gift. Otherwise just say "I can't afford to give the money and I don't loan money to anyone".
If you can't give it as a gift, don't lend it. If he can't afford the car, he can walk or bike or take public transport, and save enough to buy a car.
If you're that uncertain that your friend will pay you back, you probably shouldn't be lending the money in the first place.
Money Magazine's ethicists, Jeanne Fleming, Ph.D., and Leonard Schwarz, are the authors of "Isn't It Their Turn to Pick Up the Check?" (Free Press, 2008).
As many of the commenters have said, either give the money as a gift–or decide not to make the loan at all.
As with many, personal experience showed me that an outright gift would have been far better than the terms of a financial deal I agreed to with a sibling. The results would have been essentially the same (most of the "loan" will never come back to me), but the disappointment on my part would not have existed, and the "borrower" was probably also nagged by the unmet obligation (at least I hope she had some sense that the non-payment was dishonorable).
While I really could have used the amount of the agreed-upon payments at the time, my own money skills got me through, and my sibling apparently learned nothing from the transaction in terms of honor or principle. So to loan money to relatives or friends is an invitation to painful emotions and revelations most of us would rather not provoke.
On the other hand, you could try it, if only to make certain you'll never make the same mistake again.