Loan from a friend - advice pls!

shazzer22 · 4 March 2006 at 12:48AM

I was hoping someone might be able to help me out. I have accepted a good friends offer of help with my debt repayment. I have obtained a settlement figure for my student loan and including my credit cards it comes to just under £20k, my friend has loaned me £20k to clear this and she has asked me to repay her £250 a month for 88 months, meaning i repay her nearly £22k. This is great coz it wipes about £8k of interest off my debt bill.

Now my dilemma is, do i be extra careful with my money (like i've been doing ever since i found this website!) and save all of the additional money or do i use it to pay off my friend quicker? for the last few years my monthly outgoing spend on debt repayment has been £350ish so i'll be saving about £100 a month... i really dont want to fall into the trap of thinking i have money to spare. i like to be able to use a snowball calculation of some kind but not sure how to work out the interest in an APR amount/percentage.

Now you may just think, up my monthly repayment to my friend but she is intent on me only giving her £250 a month to give me a bit of 'breathing space'

Any thoughts would be appreciated, thanks!

roswell · 4 March 2006 at 12:52AM

My advice would be if she is looking for 22K as the return amount agree this, then pay her 250 a month and save 100 a month till the 100`s saved = the remaining debt this way you will feel you are still fighting your debts and will not be inclined to spend more than you can.

money-penny_5 · 4 March 2006 at 12:53AM

Have you thought about putting the spare cash in a savings account of your own? That way you will earn interest and once you have saved enough you could pay your friend off in full.
Just a suggestion

farquarpigmix · 4 March 2006 at 1:01AM

Hi,

Wish I had friends like that. On a serious note a friend did help me out and we agreed a payment each month. Was paying it no problems, s**t happens and I couldn't keep up the payments.

Wasn't as much as you are borrowing but the question is there, what happens if you go sick, lose your job? etc will your friend still be your friend if you cannot pay her back?

I paid my ex-friend back eventually but as you can gather we are no longer friends.

Regards

Farquarpigmix

CLAPTON · 4 March 2006 at 1:05AM

Your friend is a very nice person to give you a loan for over 7 years at a rediculously low interest rate.
Under no circumstances should you get into more debt. after that you should pay your friend the maximum you can. If your friend refuses you should bank the money in the best interest rate account you can find and save the money with a view to repaying the loan earliest possible: you can add the interest paid and give that to your friend too. Or of course your friend may fall on hard times too and may need the money. YOU don't need a breathing space ..repay the loan earliest.

Of course in purely money terms, repaying student debt early makes no sense as you can get a better rate of interest in a B Soc. but then its very marginal and being debt free is a wonderful feeling.

Alleycat · 4 March 2006 at 1:05AM

Ooh, you need to be very careful with this one. Loans from friends can often go rather pear shaped. I would suggest sticking all available spare pennies into a savings account (preferably one with a notice period). This way you can either pay your friend off early or if anything should happen - job loss etc, you would hopefully have enough to pay the £250 each month until you are back on your financial feet again.

shazzer22 · 4 March 2006 at 1:33PM

Thank you all for your comments, I think that I will pay my spare money, into a mini cash isa until november, at which point i can opt to pay more money into my sharesave scheme at work (which i wont be able to touch for 5 years!) and then by the time that comes out i can afford to pay it all off in one big lump to her. hopefully our shares will be doing as good as they are at the moment but i doubt it! :cool:

with regard to my grad loan, this is actually not a student loan, so the interest is quite high, my actual student loan, one from SLC, i havent included as i'm really not that bothered about it as it is next to no interest and i know that i can take til i'm 60 to pay that off, plus it comes out of pay cheque so dont even notice the £12

fortunately my friend is in a very stable financial situation which only looks set to improve for her, (its alright for some huh!) but i do think that you are right and i will ask her what would happen in the event of me losing my job/sickness or something horrible.

thanks for your advice :A

davilown · 4 March 2006 at 1:53PM

shazzer22 wrote:

I was hoping someone might be able to help me out. I have accepted a good friends offer of help with my debt repayment. I have obtained a settlement figure for my student loan and including my credit cards it comes to just under £20k, my friend has loaned me £20k to clear this and she has asked me to repay her £250 a month for 88 months, meaning i repay her nearly £22k. This is great coz it wipes about £8k of interest off my debt bill.

Now my dilemma is, do i be extra careful with my money (like i've been doing ever since i found this website!) and save all of the additional money or do i use it to pay off my friend quicker? for the last few years my monthly outgoing spend on debt repayment has been £350ish so i'll be saving about £100 a month... i really dont want to fall into the trap of thinking i have money to spare. i like to be able to use a snowball calculation of some kind but not sure how to work out the interest in an APR amount/percentage.

Now you may just think, up my monthly repayment to my friend but she is intent on me only giving her £250 a month to give me a bit of 'breathing space'

Any thoughts would be appreciated, thanks!

Do you trust and know your friend well? Do you know where they got the money from? They could be using you for money laundering etc and that would cause you no end of trouble.

If the are kosher then I wish I had friends like that. Save your money in high interest a/c and enjoy looking forward to being debt free.

:beer: monster

niceshoes_2 · 4 March 2006 at 2:52PM

You sure have a good friend who is willing to lend you that amount of money - he or she obviously trusts that you will repay the money back, after all, its not just a couple of hundred quid we are talking about.

I would be very cautious about lending this amount of money off any friend, and would think seriously before I committed to the loan. Like others have said, things can go horribly wrong. Its one thing not being able to pay the minimum payment to a bank or loan, but not paying back a friend is another and could mean the end of a friendship if things go pear shaped. How much do you value your friendship?

Although their circs are good at the moment and things look rosy for him/her in the future, what would happen if life deals them an unfortunate blow- that changes their whole financial situation - after all, that is how many people on here have found themselves in debt - unexpected life changes that are outside of their control.

I personally wouldn't want to take a loan off a friend, but if you decide to go ahead with it, I would advise that you try to repay your loan asap. If you have spare money each month, then make overpayments. This would show to your friend that you are not taking the p**s, that you value your friendship and that you are serious about getting debt free. Treat the friendloan like a loan that you would have from the bank and work hard to get it clear. More importantly don't be tricked into thinking that you are debt free and start spending money on things that you don't really need!

mountainofdebt · 4 March 2006 at 4:41PM

As people have already mentioned, lending money to friends is a minefield - what would your reaction be, for example, if your friend voiced her disapproval about your spending once she'd lent you the money?

If you do go ahead and have this loan off your friend, then I would be tempted to have something drawn up to reflect the fact that she is prepared to lend you the money and that at the end of the 88 month term of the 'loan' you will have repaid her the sum agreed.

I think (if you are not going to use a solicitor) to get this witnessed in much the same way a will would be witnessed ie 2 independent witnesses.

How are the repayments to be made? I would err against giving cash - your word against hers that the repayment has been made if it does go all pearshaped. I know this sounds very distrusting but I would make sure that payments are made by standing order - that way there is proof that the payments have been made. (thinking about it I think the agreement should specify the method of repayment as well as date the repayment is supposed to be made)

hth

shazzer22 · 4 March 2006 at 8:39PM

Thanks,

i have chosen to accept her offer, she has assured me that she is very financially sound and has secured her future (large inheritance) which isnt going to be frittered away! (wish i was as controlled!

)

The payment is set up on a standing order and she is having her accountant draw up an agreement.

Really glad i raised some of the issues with her that you have brought to my attention, thanks! :T

Loan from a friend - advice pls!

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