Opinions on loan option.

shandy1

Hi. Anybody lent or borrowed money to a friend? I'm looking at this option and want some advice.
I'll start from the beginning ......

I need a new car since I had to get rid of my blown head gasket Polo 2 months ago.
I've been using the bus service since, which has not been too bad, but as I work shifts and weekends, the buses are limited which means I'm waiting around at work after a night shift, or struggling to get there on time for a weekend shift.
Anyway, I cant afford to buy one outright so I'm looking at loans.
Lloyds, who I bank with, have offered me a £5k loan at 25% which I think is too much and I really only want to spend £3k including tax and insurance for the year.
I don't think I could get a cheap APR with anyone else as I have moved house twice in the last 18 months and although I generally have a good history with credit, a couple of times I missed payments to a bank account I opened, but no longer used. (i was unemployed at the time but now have a very stable job)

I got talking to a friend who was miffed to find out, for the past year his savings in his ISA was only making 0.5% interest. Although he is now due to move it in to one with 3 or 3.5%.
I mentioned about my loan queries and he has offered to lend me the 3k.

So basically I think I would need 24-30 months to pay it back and whatever he would make from his ISA in that time I would pay a bit more back.
So for example If he was to get 3.5% per year from his new ISA, and
I would agree to pay the loan back in 24 months and pay him an overall interest rate of 9-10%

Does this seem to be on the right lines?


Sorry for the long post, I look forward to your responses and help!:D

ViolaLass

In theory, yes.

But.

Would you be able to stay friends if you stopped paying? What if you lose your job? What if your friend needs the money back urgently? There is great potential for trouble when friends lend to friends.

shandy1

Well although these days no job is 100% safe, I have a job within the nhs where demand is high, I am multi skilled and forever doing overtime as we are short staffed so pretty confident on that front.

We are good friends and would have no intention of breaking a contract. I'm due a pay rise in may, and later this year will be moving in with my GF so will have more cash on all fronts. Just not enough now for a car!

Obviously thats up to him and he will have to make his mind up that he wont want the money back straight a way.

ViolaLass

Generally the view on this board is that it's a really BAD idea, mostly for the reasons I've already given.

I think it /can/ be a good thing but you have to be really careful and go into it realising that it could make the situation worse e.g. he loses his job, needs the money urgently, starts harassing you. Sure, you might have the intention to pay, just be aware of what could happen if it goes wrong.

I'm on the other side, I've lent to friends who were paying off credit cards. They pay less money (I only charge 3%!), I get a warm glow from helping, everyone's happy but I am completely aware of what I'm risking and that I may not get the money back.

shandy1

Yeah I know what you are saying, I'm fine with 10% apr so I'm letting him decide if he wants to go through with it.

paddyrg

I wouldn't. Nothing comes between friends or family quite as badly as money. It is why banks exist. If your credit history is generally ok, try zopa.com or ratesetter.com who are both peer-to-peer lending, so people lending to one another but with the risks shared and everyone knows what they are doing. On Zopa you can even state your case on their forum (NHS, etc., all helps) and see what loan offers come to you. By and large, rates are low - much lower than I would want to lend at anyway!!

It means your friendships stay friendships with no complicating obligations or debts. Your friend could even 'invest' via zopa/ratesetter so service you indirectly!!

shandy1

Well It is good apart from the couple of occasions I missed payments on my bank account which was 2 years ago now. Coupled with I've moved house twice in that time, I think I would struggle to get a good rate.

My friend has really good finances and a good job, therefore hasn't had the need to apply for credit cards or loans so I'm doubtful whether he would get a good rate either.

I'm phoning Equifax later today to cancel my free trial and I will ask them if they think I would be accepted for a decent rate loan.

ViolaLass

shandy1 wrote: »

Coupled with I've moved house twice in that time, I think I would struggle to get a good rate.

That shouldn't affect you. Are you on the electoral role?

shandy1 wrote: »

I'm phoning Equifax later today to cancel my free trial and I will ask them if they think I would be accepted for a decent rate loan.

It's up to the bank, not them. Different banks will assess you in different ways.

shandy1

Hi, I checked my equifax details again and It looks as if I'm on the electoral role. It says in the table something like :
years on role - 1
previous years on role -11
So I guess the 1 year means I've changed from previous address??:o

The bad thing though is my late payments from my old Alliance and Leicester Current Account. It was actually 6 consecutive late payments from October 2009 to March 2010. More than I previously thought. It is all now settled along with a previous Alliance and Leicester loan of £4000 with no missed or late payments.
I also have a credit card which I use regularly and pay off on time every month.
That's why Im almost certain no one will touch me with a barge pole while them missed payments are on my file:(

redpete

shandy1 wrote: »

Well although these days no job is 100% safe, I have a job within the nhs where demand is high, I am multi skilled and forever doing overtime as we are short staffed so pretty confident on that front.

You both also have to be confident that his circumstances won't change in the next 3 years either. Might he lose his job, or have to move house, or want to get married, or divorced, or have his car break and need to replace it...

We are good friends and would have no intention of breaking a contract.

Not many people in this position intend breaking the agreement when they start off.

CHR15

I think you should show your friend your credit file. He is taking a huge risk with someone (sorry to be blunt) with a history of not making repayments to creditors.

I'm another who advises against this option. Too much can happen in 2yrs which could make this arrangement go horribly wrong.