Lending to a family member

downshifter

I know, I know, I've read all the advice against doing this, however I still would like to lend some money to a family member for a specific purpose and would like some advice about setting up an agreement.

It will be for around £7500 and I want to arrange for him to give me £1k 'deposit' and pay the rest in instalments. I can afford to lose the money and once he repays around half of it I will probably write the rest off anyway as a gift. (Though of course he doesn't know that!) That's as long as he fulfils his side of the arrangement and doesn't mess around with excuses and late payments etc - I don't think he will though.

I want him to feel it's a serious arrangement, not just a casual one between family members so would like a written agreement which we will both sign. Can anyone recommend what should, or should not be included? Do you think it would be enough to set out a repayment schedule (eg on the ? of each month I agree to repay Downshifter £200 by direct debit until Feb 2017 etc) and signed.

I want to help him but also want him to realise that a loan, even from a relative, is a serious business. Probably sounds really mean but I do want to help him. When we were starting out we were very grateful when my uncle loaned us some money.

Your advice please. Thanks

Nasqueron

Don't do it, it'll just give you a lifetime of family grief when he stops repaying or wastes it.

If you really want to lend money does he have the ability to pay it back? Can he not buy something cheaper (I'm assuming it's not for something like a mortgage deposit where a loan is not allowed normally)?

somethingcorporate

It's not always about whether you can afford to write it off or not, it's about the breakdown of relationships and entire families that can occur when it is not paid off.

Did you read the lending to F&F monster thread with about 10000 horror stories on why not to do it.

Dabooka

I borrowed £5k from my mother and paid it back as agreed. I now have £50k of their money tied up in my house (!) and maintain that as agreed (but can't wait to settle that one).

I'm only posting in the name of balance. You know the individual, the risk, the purpose of the loan and how much the money is needed by you. The usual advice of 'No!' is sound advice based on the emotional, rather than fiscal, impact of a non payer. It can make family life very awkward.....

Foxy-Stoat_3

I think your going to do it anyway, no matter what folk say on here.

Put both parties name and address, total amount you are lending, any interest rate, length of the term including the monthly payment and purpose of the loan and a place for signatures and add a place for a witness signature.

downshifter

Thanks for the responses. I don't need to decide quite yet but yes, I think I am going to do it. Again in the interests of balance, although I have read the horrendous stories about this kind of thing going wrong, in our family we have often done this, as I said, I've been a grateful recipient myself when younger, and it's always been fine or if there have been very occasional difficulties, things have been thrashed out and agreements reached.

Thanks for the guidance re a written agreement F-S, I hadn't thought of a witness, that's a good idea - I just don't want him to think of a family loan as anything less serious than a commercial one.

Perhaps I should report back in a couple of years time!!!

Thanks again

DS

Foxy-Stoat_3

To be honest, a witness is probably worthless but IF they stop paying and IF you choose to reclaim the money legally, then it can only add strength if it ever went to a small claims court, getting the money is again another matter.

But if say they are buying a car with the money, and the "agreement" states what is is for, maybe including a registration number, everyone signs it and they stopped paying then I am sure Judge Judy/Rinder will be on your side !

fabforty

You should also add a clause which covers what happens in the event of missed or non-payment. Remember that many of the horror stories happen when people cannot pay, not when they choose not to. Regardless of how well you know this person, and how much you trust them, unemployment/redundancy/illness/accidents, can happen to anyone. If they take out a bank loan themselves, they can protect against these eventualities with insurance - but you can't.

CHR15

Why doesn't he just get a loan from a bank?

Tixy

I would include a clause to state that payments can only be varied with prior permission from the lender in writing.

You may also want to add in something about if any payments are missed (or more than 2 payments are missed) then the full outstanding balance becomes due immediately.

These type of clauses shouldn't in reality make any difference to your ability to take court action but may help with your aim of him taking the loan seriously.

And mention how payments must be made - you don't want them in cash ever, they need to be in to an agreed bank account. Don't put by DD which you mention in the first post, as that is not possible by 2 individuals- it would need to be by standing order or by manual transfer etc.

Payments in cash are always a bad idea, as they cannot later be proven (or receipts given can be lost/disputed etc).

d70cw6

Why not just gift it to them. Tell them if they want to repay it, then that would be appreciated, but don't expect or demand it back.