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  • FIRST POST
    • Trishy M
    • By Trishy M 12th Mar 18, 4:07 PM
    • 12Posts
    • 2Thanks
    Trishy M
    how do I protet myself if I lend money
    • #1
    • 12th Mar 18, 4:07 PM
    how do I protet myself if I lend money 12th Mar 18 at 4:07 PM


    Hello,


    I have a close relative who took out a loan that ended up being secured on the house. I think the company is called Together. 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. Its APR is really high.


    We are agreed the loan has to go.


    He is self employed so can't get a re-mortgage with a real bank (tried) but has an existing mortgage for £32000 that’s ok.


    House = £140,000, mortgage £32,000 loan now £40,000.


    I have excellent credit rating and equity in my house with a mortgage. House £140, mortgage £50. I have spoken to a lender and can get a good mortgage and in theory I am able to do one of the following:-


    *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.


    *I take 2nd mortgage for £40000 on my house and he pays the repayment each month on top of his mortgage for 15 years until clear. He can afford the payments.


    Sounds straight forward and I don’t believe there is any intention to take the money and run but stuff happens so:-


    Would we need solicitors for a loan agreement or do it ourselves?


    Can I make sure I get the outstanding money back if the house is sold?


    Can I put anything and enforce it if there is a problem with the payments?


    What if he dies?


    Any ideas would be appreciated please.

Page 1
    • McKneff
    • By McKneff 12th Mar 18, 4:13 PM
    • 36,003 Posts
    • 46,359 Thanks
    McKneff
    • #2
    • 12th Mar 18, 4:13 PM
    • #2
    • 12th Mar 18, 4:13 PM
    Don't do it.

    Thats the only way to guarantee you wont be shafted
    make the most of it, we are only here for the weekend.
    and we will never, ever return.
    • IanManc
    • By IanManc 12th Mar 18, 4:27 PM
    • 538 Posts
    • 873 Thanks
    IanManc
    • #3
    • 12th Mar 18, 4:27 PM
    • #3
    • 12th Mar 18, 4:27 PM
    You should not mix your finances with those of someone who cannot manage his or her own.

    I suggest you "protect yourself" by not getting involved and let your relative sort out their own mess.
    • Reaper
    • By Reaper 12th Mar 18, 4:38 PM
    • 6,249 Posts
    • 4,502 Thanks
    Reaper
    • #4
    • 12th Mar 18, 4:38 PM
    • #4
    • 12th Mar 18, 4:38 PM
    Several things concern me.
    * You have not included losing his job in your list. There is a reason banks are wary of the self employed because they view their income as less dependable.
    * If his past problems are over can he not increase his payments to clear the loan faster? If not because he is stretched that does not look good for the security of your loan repayments.
    * If he dies you will be an unsecured creditor
    * You would have to get any agreement in writing. Considering it's a fairly large sum I suggest a solicitor to draw up any contract and answer the sort of questions you have. The mortgage option is safer as at least you have security.
    * If he is unable to make all the repayments either deliberately or not this will put a strain on or end your friendship.
    • Trishy M
    • By Trishy M 12th Mar 18, 4:43 PM
    • 12 Posts
    • 2 Thanks
    Trishy M
    • #5
    • 12th Mar 18, 4:43 PM
    • #5
    • 12th Mar 18, 4:43 PM
    Thanks
    Whilst I agree with you on the not doing it, it has got silly with the loan company. I have searched on here for them and the only thing to do is pay them off. He is already paying £600p/m, with a real company this would have made a massive dent in the loan already.
    • thriftylass
    • By thriftylass 12th Mar 18, 4:52 PM
    • 3,311 Posts
    • 27,089 Thanks
    thriftylass
    • #6
    • 12th Mar 18, 4:52 PM
    • #6
    • 12th Mar 18, 4:52 PM
    Just don't do it. The risks are too high. Unless you have the money to just gift him 40k, don't. There are so many unforeseen, unexpected factors to consider.

    BTW just out of interest what is the term of the loan and the APR.
    • inflationbuster
    • By inflationbuster 12th Mar 18, 4:53 PM
    • 164 Posts
    • 45 Thanks
    inflationbuster
    • #7
    • 12th Mar 18, 4:53 PM
    • #7
    • 12th Mar 18, 4:53 PM
    Talk to citizens advice about the extortionate loan? They may advise restructuring it.

    Let your relative sort out the loan.
    • Lungboy
    • By Lungboy 12th Mar 18, 4:58 PM
    • 1,371 Posts
    • 1,315 Thanks
    Lungboy
    • #8
    • 12th Mar 18, 4:58 PM
    • #8
    • 12th Mar 18, 4:58 PM
    He is already paying £600p/m, with a real company this would have made a massive dent in the loan already.
    Originally posted by Trishy M
    Not really, on a large loan like that it will take years to make a dent in the capital repayment.
    • aroominyork
    • By aroominyork 12th Mar 18, 5:03 PM
    • 450 Posts
    • 133 Thanks
    aroominyork
    • #9
    • 12th Mar 18, 5:03 PM
    • #9
    • 12th Mar 18, 5:03 PM
    Two pieces of advice about lending money: 1) only do it if you are ready to see it as a gift which is not repaid, and 2) anyone you lend money to will end up hating you.

    That doesn't mean don't do it, but go in with your eyes open and wary of turning someone else's problems into your own.
    • xylophone
    • By xylophone 12th Mar 18, 5:35 PM
    • 25,371 Posts
    • 14,967 Thanks
    xylophone
    He might have to consider selling his property and renting a home?
    • ChesterDog
    • By ChesterDog 12th Mar 18, 6:02 PM
    • 878 Posts
    • 1,643 Thanks
    ChesterDog
    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.
    I am one of the Dogs of the Index.
    • PeacefulWaters
    • By PeacefulWaters 12th Mar 18, 6:46 PM
    • 8,320 Posts
    • 10,638 Thanks
    PeacefulWaters
    Don't do it X 1,000,000.

    Would we need solicitors for a loan agreement or do it ourselves?
    Solicitors. You'd be nuts to do this on the back of a fag packet.

    Can I make sure I get the outstanding money back if the house is sold?
    Yes. A legal charge can be placed on his property in your favour.

    Can I put anything and enforce it if there is a problem with the payments?
    You can call him a very naughty boy or send the boys round.

    What if he dies?
    Life assurance policy on his name in your favour.

    Any ideas would be appreciated please.
    Just don't do it. He's already mismanaged his loan commitment. It's not a track record you want.
    Last edited by PeacefulWaters; 12-03-2018 at 6:49 PM.
    • Thrugelmir
    • By Thrugelmir 12th Mar 18, 6:47 PM
    • 58,475 Posts
    • 51,848 Thanks
    Thrugelmir
    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.
    Originally posted by Trishy M
    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.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • enthusiasticsaver
    • By enthusiasticsaver 12th Mar 18, 6:49 PM
    • 6,397 Posts
    • 13,134 Thanks
    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.
    Debt free and mortgage free and early retiree. Living the dream

    I'm a Board Guide on the Debt-Free Wannabe, Mortgages and Endowments, Banking and Budgeting boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Any views are mine and not the official line of moneysavingexpert.com. Pease remember, board guides don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com
    • steampowered
    • By steampowered 12th Mar 18, 7:11 PM
    • 2,495 Posts
    • 2,416 Thanks
    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
    • By jimjames 12th Mar 18, 7:58 PM
    • 12,584 Posts
    • 11,230 Thanks
    jimjames
    *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.
    Originally posted by Trishy M
    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
    Remember the saying: if it looks too good to be true it almost certainly is.
    • DigForVictory
    • By DigForVictory 12th Mar 18, 8:04 PM
    • 7,702 Posts
    • 22,287 Thanks
    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
    • By John-K 12th Mar 18, 8:08 PM
    • 654 Posts
    • 1,010 Thanks
    John-K
    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
    • By John-K 12th Mar 18, 8:17 PM
    • 654 Posts
    • 1,010 Thanks
    John-K
    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.
    Originally posted by ChesterDog
    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
    • By Malthusian 13th Mar 18, 10:18 AM
    • 4,104 Posts
    • 6,425 Thanks
    Malthusian
    the outstanding balance is more than at the start.
    Originally posted by Trishy M
    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.
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