Do you lend money to friends? How do you react when a friend asks for money?

Thanks to banks giving loans literally for everything – personal loans, car loans, home loans, these days the number of people asking for loans has gone down. However at one strata of society it is possible that people come and ask for a 10-100,000 loan. How would you deal with that? For me it is a hypothetical question – I do not have friends who will ask me for a Rs. 100,000 loan, and if they ask for Rs. 1,00,00,000 I will not have it. So life seems fine!

I know of a manager in a BFSI company who had ‘progressively’ borrowed from a colleague – starting from Rs. 500 ….and creating a track record of prompt payment. When he left the company they realized that he had touched many people for small loans – but one manager had given him Rs. 42,000. All the loans put together was Rs. 219,000.

He had flown the nest. Yes people had his cell number. However as is wont he changed his number. A couple of people were untouched.

Why does it happen that people KNOW whom to approach for a loan? Sheer ability to spot suckers I think.

I know both the people who were untouched. One was this guys immediate boss. The BOSS actually said ‘you got to be joking…all my money is invested…i am into SIP till my eyebrows’. Then the guy stayed away. It is also true that his boss was upto his eyebrows in SIP and NEVER had cash sloshed around to give. I mean on a ctc of Rs. 34 lakhs it is difficult to find a guy who did not have 10k to fool around.

The other guy NEVER gave the feeling that he had the cash to EVER give amounts. The manager thought of this guy as an idiot with no cash. He actually had a networth MORE than the net worth of 4 other managers PUT TOGETHER….However he lived life very frugally – you know the works – carry own food, carry own water, vacations in Mahableshwar and Goa….

Should you lend to friends?

No. However everytime you cannot say no, can you?

Here are 3 secrets to loans to friends:

a) buy something off the client which the client does not want: Normally a few are shopaholics and will have some thing which you can buy off him/ her. The advantage is it dramatically reduces YOUR loss without being unpleasant.

b) get some work done by him: if he is a skilled person get something done for a FEE. This increases that person’s worth and he/she will happily do it for a fee. Even if you over pay a little…you have got some work done, have you not?

c) Make a contract, and notarize it. : let him feel that you will go to court if need be….EVEN if he thinks you will NOT ultimately go, he will be scared that YOU can. Threat is more imp than carrying out the threat….

 

 

Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

  1. Above holds true for acquaintances
    Real friends will not ask for money from you till they are desperate
    In that case , if you are able, why not help out gracefully ?
    After all, what are friends for?

  2. Also, please make sure in the worst case, the money you are giving , is something which you can afford losing, if worst comes to worst and both the relationship and money are lost.

  3. Had a frd in college who did this !!! Was always prompt in returning the money and built trust on that. Final year absconded with 12K in total .. and nobody knew his home town / address to go around to ask ! Neat scam.

    Loaning to friends is a dicey issue. I believe that if you do give money – be prepared to lose it entirely. So that should make it easier to ensure you don’t sell the clothes off your back for the loan.

    I do like your suggestions though.

  4. ” .. in my janampatri, I have been asked not to loan money, and I value your friendship too much…”

    But this saying no gracefully is very very tough.

  5. Money can make friends and enemies as well. When it comes to loan I prefer to stay away. If person is in dire need of money (as per individual perception)provide help of what one can offer and not loan.

  6. I agree with Atul. But Subra Sir the last para where you mention that the loan should be in writing is also worth noting.

  7. personally i do not give loans. At all. I have a friend who does – although not as a business. He secures the loan with assets like shares, nsc, etc. I send ‘friends’ to him. It is clearly understood as a business transaction. This saves embarrassment – I even structure the loan, interest rate, etc. but have NO commercial or emotional interest. However it is an implied personal guarantee for the whole amount. No regrets so far. Total sum disbursed must be more than Rs. 10 Million.

  8. I like one statement in Rich Dad Poor Dad about this. It goes something like this.
    “When I got money, everyone asked if I can help them by lending them some, no one asked how I earned that money.”

Leave a Reply