how do I protet myself if I lend money

Thrugelmir

Trishy_M wrote: »

Anyway he had problems a while back but spoke to them as you're supposed to, had payments agreed with them but they put charges and interest on and ruined his credit rating so the outstanding balance is more than at the start. He has been making their extortionate payments now for a few years but it won't be paid off for a long time.

Interest will continue to accrue on the debt owed. Likewise they'll be specified contractual charges to pay if the terms of the loan aren't adhered to. Failing to meet a contractual committment will impact a personal credit rating. That's the whole purpose of them. Otherwise they'd be useless to other users.

enthusiasticsaver

Once the loan is paid off what guarantee do you have your relative wont default and not pay you back a penny? Will you be able to make the payments? If he dies what will happen? Supposing he manages to remortgage the house at some point in the future and you have no security? As others have said paying off debts for friends and family goes wrong frequently. There is a reason your relative cannot get credit from the usual sources at a reasonable rate and that is because he is a bad risk. Are you prepared to lose £40k. Any agreement you make could be unenforceable unless you are prepared to go to court and that is expensive.

The safest option is for him to sell up and buy somewhere cheaper.

steampowered

If you are going to do it, I think you should pay the creditors directly and get him to sign a formal loan agreement under which he must repay the debt.

You should probably also get a charge placed over his property.

You would need a solicitor to do all of this correctly.

At least then, if he fails to make payments or goes bankrupt, the debt would be secured against the property.

You would have to accept that it is very difficult to get an order for sale of a property, even if you have a charge. So if he refused to pay, you might not get paid until the property is sold.

Personally, I'd be advising him to scrimp and save to pay off the high interest loan as soon as possible. He can use cheaper debt to pay off the high interest debt, if possible.

jimjames

Trishy_M wrote: »

*We thought about me buying the house for £72,000 with a ‘gift’ of the difference to clear the mortgages on it with him making the payments (safe for me with the mortgage on that house not mine and property in my name) but I would have to be a landlord & work out tax etc and the stamp duty £5400 and solicitor fees will put £7000+ on top of the loan. We think that would be better coming off the balance.

You will probably find that buy and rent back won't be permitted. I believe it isn't now possible to do except in some very limited situations

DigForVictory

Yet another voice uplifted in the chorus of please, just Do Not Do It.

You cannot protect yourself & your money from idiots other than by refusing to start. Doesn't matter he's a close relative - he'll still be calling you names as soon as you have to try to enforce matters be you an exorbitant loan shark or his lost twin - so let the exorbitant sharks have the chap. Keep your money & your sanity.

John-K_3

Protect yourself? A big, professional financial company with a charge on his house found that he still did them over, so it is really hard to see why you think that you can do better.
It is great that you will dig him out of a hole, but the chances are he will end up resenting you, you will end up resenting him, and you will lose your money and risk your house.
As to the charges being extortionate, he had bad credit when he took out the loan (hence using that lender), did exactly what his history suggested he would do, and yet you think that he won!!!8217;t do it to you too?

John-K_3

ChesterDog wrote: »

You are in danger of turning his problem into your problem.

I have lent money to three relatives/friends over the years.

Once they have it, they seem to develop the view that you mustn't have needed it yourself after all and won't miss it.

This bit matters, OP. The first time he goes without something he fancies to have to pay back the wealthier relative the resentment will start.

Malthusian

Trishy_M wrote: »

the outstanding balance is more than at the start.

This is normal if you borrow money and then don't pay it back. Interest gets added on, and you haven't paid it off.

He has been making their extortionate payments now for a few years but it won't be paid off for a long time. Its APR is really high.

This is also normal if you borrow money and then don't pay it back.

The reason your credit rating is good is because when you borrow money you do pay it back.

He either needs to carry on making the repayments until it's paid off, or sell the house and pay off the debt. Simple as that. His debts are not your fault, and you shouldn't be punished for them.

If he truly has changed his spots he would sell the house, pay off the debt, rent for some years, rebuild his credit history, and when he can show that he has a consistent income from self-employment and a good credit history, get a mortgage and buy another one. With the net proceeds of the house he won't have to save for a deposit.

For avoidance of doubt, don't do it.

IanSt

How close is this close relative of yours?

If it were me then I might think of doing this for a very close relative i.e. sibling or parent, but I doubt I'd do it for any other relative more distantly related e.g. nephew, aunt, etc, because of the various problems mentioned above.

Biggles

Trishy_M wrote: »

He is self employed so can't get a re-mortgage with a real bank

Complete rubbish. Self-employed people can get mortgages - do you think they all live in tents? They don't have salaries but they have accounts that show their income.

In fact, I remortgaged while I was self-employed. It isn't a problem, unless for 'self-employed' he really means 'loafing around and sponging off others'.

He's not trustworthy, can't deal with money and is probably lying to you. Don't lend whatever you do.