When you lend money to a close friend, do you charge interest?

[Pure]

[ADDED: Both parties , in the transaction, if it occurs, would view it as a loan. That is, there is an implicit] agreement that it be repaid.

What are your thoughts? Is it 'unfriendly'? Is it a necessity so you won't be taken advantage of? Is it moral?

Is it a case, if you charge, of 'making money off your friends,'? Is it 'taking advantage'-- though of course you wouldn't take the full pound of flesh the 'payday loan' folks would.

We will assume it's a non trivial (not $10), even substantial amount (say $100-$1000), yet not so much as to be a serious inconvenience, e.g. necessitate your borrowing.

ADDED: IOW, you are NOT borrowing and yourself paying interest, in order to loan; neither are you 'cashing in' an interest-bearing bond (i.e., foregoing interest), nor even deferring your usual payment into your Retirement Savings Plan, nor deferring a required payment on your debt .

We will assume that the person is known to be reliable, hence so far as possible he will re pay; that said, an unforeseen disaster is always possible.

We will assume the length of time is not ultrashort, e.g. not a couple days, but more like 6 mos or more.
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Supplementary question: Do you distinguish two kinds of cases:

1) Where the friend is simply 'in need'; his only 'gain' is avoiding pain, loss of credit, loss of car, whatever.

2) Where the friend stands to gain, monetarily--e.g., your loan will help in some business deal intended to make a profit. E.g. setting up a company.

 

[Zeb_Carter]

What are your thoughts? Is it 'unfriendly'? Is it a necessity so you won't be taken advantage of? Is it moral?

Oh, so are they are supposed to pay you back?

 

[Tuomas]

There was an interesting commercial for beer in my country a while back, that said the reason this country was a develloping country was that people never paid their debts to their friends. It made you reflect on how much money you had loand out, but never got back over the years, and if that money had been invested, instead, everyone would be rich. Silly, but, hey, it's a beer commercial.

Anyway, I don't "loan" money to my friends; it causes too much problems collecting on it later. I just assume they will never pay it back .... and it's hard to charge interest on that.

 

[Guest]

 

[angelicminx]

What are your thoughts? Is it 'unfriendly'? Is it a necessity so you won't be taken advantage of? Is it moral?

As a general rule I don't charge interest.

Unfriendly? Maybe, depends on your perspective and your history with whoever you've lent money to. If it's money lent on a credit card the interest on the amount borrowed should be paid by the person borrowing it.

Necessity to avoid being taken advantage of? LOL. If they are going to take advantage, they will do it whether there's interest involved or not. I don't lend money to people who have taken advantage in the past, friends or family either one.

Moral? No idea. Who decides what moral is except yourself? Charging someone interest on cash (not credit card) would make me feel bad, so I don't do it.

 

[Selena_Kitt]

I don't have money to lend... !

But we borrowed $1500 from my sister and brother in law and they charged us interest... they took it out of their home equity, and THEY were being charged interest on it, so it seemed fair...

and as soon as we paid them off (plus interest) the car we had borrowed it to buy died... of course!

 

[Pure]

Pure, can you lend me $1,000?

dear, i'd never charge you interest in money... but, in kind.... maybe we could work something out?

 

[Guest]

 

[elsol]

The agreement is that it be repaid.

What are your thoughts? Is it 'unfriendly'? Is it a necessity so you won't be taken advantage of? Is it moral?

Is it a case, if you charge, of 'making money off your friends,'? Is it 'taking advantage'-- though of course you wouldn't take the full pound of flesh the 'payday loan' folks would.

We will assume it's a non trivial (not $10), even substantial amount (say $100-$1000), yet not so much as to be a serious inconvenience, e.g. necessitate your borrowing.

We will assume that the person is known to be reliable, hence so far as possible he will re pay; that said, an unforeseen disaster is always possible.

We will assume the length of time is not ultrashort, e.g. not a couple days, but more like 6 mos or more.

I don't charge interest but I'm of a slightly different mindframe than most people.

If it doesn't cost me anything, I consider it a courtesy and I extend that to everyone. So I would never consider something like charging my carpool people for gas... I have to make the trip anyway so I'm just being courteous by letting them tag along. In the reverse, I would of course pay gas because it's the courteous thing to do.

If I woudn't miss the money, say in the trivial area, it's just being courteous. Although, there is a running count in case people get into the uncourtesous range.

If it's my sexual partner, I go out of my way to make sure she doesn't have to ask... i.e. giving my GF 5K for Christmas & her B-day to put down on a new car.

I also don't have a lot of friends and they understand the mindset into the non-trivial range ($100+).... lending them money and not getting paid back is them saying "I don't want to be friends anymore".

 

[Liar]

The agreement is that it be repaid.

What are your thoughts? Is it 'unfriendly'? Is it a necessity so you won't be taken advantage of? Is it moral?

The only "taken advantage of" that bothers me is not being repaid in decent time. Charging interrest would then not make a difference.

So, no. It's a favor, not business.

 

[S-Des]

I'm flattered--I never even knew you noticed me.

*flutters eyelashes*

We can discuss all sorts of "interest."

No comment.

I always tell people, you look at a loan to a friend the same way you look at the money you are going to gamble in Vegas....you'll never see it again. That way, you won't be upset if it happens. Way too many friendships end over money. The fact is, when you don't have enough money to pay your bills, you have to pay the people who are going to reposess your car or sue you before your friend. So if they're counting on the money, you are both in a bad spot. Treat it like a gift (in your mind) and you'll be happily surprised when/if they pay you back. If you can't afford to lose it, tell them you can't help.

 

[alyxen]

I voted never. My reasoning: if someone wanted to borrow money and I was inclined to charge them interest, then I take that to mean I don't really want to lend them money. True friends and close family wouldn't have to think about it as I would be 'lending' the money not caring if I got it back. (assuming it was for something worthwhile, like food/rent and not for something on ebay)

 

[Tuomas]

There is another scenario. I hired my friend for a couple of years (he quit to persue higher education), so whenever he borrowed money from me, I always got it back at the end of the month

Still, there is a very wise saying here, "clear accounts preserve friendships." or something like that. I suck at translations....

 

[1_hotlilmomma]

Supplementary question: Do you distinguish two kinds of cases:

1) Where the friend is simply 'in need'; his only 'gain' is avoiding pain, loss of credit, loss of car, whatever.

2) Where the friend stands to gain, monetarily--e.g., your loan will help in some business deal intended to make a profit. E.g. setting up a company.

The key would be that before I lent a large amount of money...they would have to have a damn good reason/need. But if the friend just wanted something and it wasn't too much ($100 or less) I would lend it then.

 

[English Lady]

Nope, never and I don't expect itto be paid back. If I can't afford to give it to the friend/amily member I won't loan it out either, that's how bitterness can set in.


I never have a substantial amount to lend out anyway *L*

 

[matriarch]

Not sure about friends, but I did lend a large sum of money to each of my sons, from my savings. The agreement was that they would pay me back at the interest I would have got from my investment account. So far, its working. I can nag them. Nagging friends would just be so very....uncomfortable. I couldn't do it.

 

[Jenny_Jackson]

Definately Not. I neither lend nor charge interest. If a friend comes to me and needs money and has a good reason, I GIVE it. Lending comes between friendship.

Remember Shakespeare ~ "Neither a borrower nor a lender be."

 

[rachlou]

i wouldn't ever lend anyone a large sum of money (cos i never have any money!) but i am always happy to lend a few pennies for something silly from the shop at lunchtime, just as my friends do for me. I don't keep a note of what I have lent them - it all works out in the end

 

[rgraham666]

I don't have any money to lend, but wouldn't ask for interest if I could.

It's just money, so I don't get bent out of shape about it.

 

[cloudy]

I just assume they will never pay it back

What he said.

(although it's been years since I had any money to lend)

 

[JamesSD]

Supplementary question: Do you distinguish two kinds of cases:

1) Where the friend is simply 'in need'; his only 'gain' is avoiding pain, loss of credit, loss of car, whatever.

2) Where the friend stands to gain, monetarily--e.g., your loan will help in some business deal intended to make a profit. E.g. setting up a company.

I generally don't loan any substantial amount of money to friends. It just causes too many problems.

Of course, if I felt it was needed to avoid pain, I might be inclined to make a loan. Never more than I could afford to lose of course. Assuming we're talking less than a year and they pay it back in full in that time period, I think not charging interest is a goodwill "gift".

In the case of 2), I think it's far, far better to set it up as an investment rather than a loan. You'd want a contract that spells out in uncertain terms what percentage of the profits you are entitled to, and what the buyout conditions are.

 

[Pure]

Hi S Des,

SD I always tell people, you look at a loan to a friend the same way you look at the money you are going to gamble in Vegas....you'll never see it again. That way, you won't be upset if it happens. Way too many friendships end over money. The fact is, when you don't have enough money to pay your bills, you have to pay the people who are going to reposess your car or sue you before your friend. So if they're counting on the money, you are both in a bad spot. Treat it like a gift (in your mind) and you'll be happily surprised when/if they pay you back. If you can't afford to lose it, tell them you can't help.

P: Excellently stated. Always be prepared to forget it.

That said, occasionally the amount is just too great (for me). Say, $2000. To enforce the principle (no loan unless it can be written off), would harm the friend. So a large amount would be loaned, w/o interest, in an emergency with the clear understanding of getting it back (and checking out the situation to make sure that is highly likely--i.e. it's not a gambling debt!)

 

[Pure]

Hi James, --and my ulterior motive..

That was a good point about perhaps structuring an investment, rather than a loan. I take this to mean the following distinction: The loan of $1000 is expected to be repaid, $1000, regardless. The capital investment of $1000, say, in a $10,000 enterprise, might not be repaid at all, if the enterprise fails, or it would be 'discounted', e.g. 30 cents on the dollar. BUT if the $10,000 enterprise generates $20,000 in profit, I can theoretically--by selling out at that instant, get back my $1000 AND 1/10 of the $20,000, i.e., a total of $3000 dollars. (I'm no expert, here, but I think that's it.)

my ulterior motive, friends

Xtians have historically opposed usury, but muslims have gone a step further and held it to be immoral to make loans with interest.

In effect, muslims apply what many have said applies at an individual level, with close friends, to everyone.

How do Muslim Banks stay in business then. By the principle James suggested. So says my source, quoted below. In effect the bank becomes a 'partner' in an enterprise, with consequences as above:

What do people think ?? At least one British Bank, see below, has been trying this system.

Perhaps it's superior both morally and businesswise??

http://www.alastairmcintosh.com/articles/1998_usury.htm

A MODERN APPLICATION OF USURY PROHIBITION

Excerpt from a paper by Alasdair McIntosh

Islamic Banking

A previous section on Islamic prohibition of usury made mention of the rejection by Islam of financial interest or riba, largely on the grounds of its negative distributive justice and equity effects (Khan, 1986). Out of this prohibition has developed perhaps the most sophisticated and complete theoretical systems of interest-free political economy in the world (Chouhury & Malik, 1992).

The specific methods for implementing Islamic banking have centred around financial equity based approaches, most notably Mudarabah - a joint venture between the bank and a ‘partner’ with both contributing to the capital of the project and sharing the profit or loss - and Musharakah - in which all the capital for an investment is provided by the bank in return for a predetermined share of the profit or loss of the business undertaking (Kahn & Mirakhor, 1986).

The first modern Islamic bank was established in the 1960s in Egypt (The Banker, 1989) and in the ensuing three decades, Islamic banking has grown into an industry with $80 billion in deposits and 100 banks and finance houses (Khalaf, 1995).

Much of this growth has been as a result of the comprehensive attempts by Iran, Pakistan and Sudan over past 10 years to restructure their national banking systems to bring them into accordance with Islamic law of the Shari’ah (Aftab, 1986; The Economist, 1992a).

In addition, increasing numbers of banks outside these countries, including in Western countries, have begun to offer parallel Islamic banking services (O’Brien & Palmer, 1993). As recently as 1996, the UK joined these latter ranks, with Flemmings Merchant Bank (1996) offering the first Islamic banking service, the Oasis Fund, to British customers.

The claimed advantages of the Islamic banking approach to finance are that it results in: more just and equitable distribution of resources; more responsible and profitable lending due to the necessarily closer bank-client relationship; less volatile business cycles; and more stable banking systems (Taylor & Evans, 1987); as well as “the relative efficiency of the interest-free money system over the alternative interest-based system” (Darrat, 1988).

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[Roxanne Appleby]

If you borrowed from a friend, would you expect to pay interest at a rate comparable to the return the friend could expect from investing her money? Or would you expect your friend to provide you a gift by not asking for that interest?

Question: Is this transaction taking place on Christmas day, or on your birthday?

 

[TheeGoatPig]

I'm owed around $1000 from various people. I don't really care about it rightnow.