It's Best Not To Loan Money To Friends Or Family It Can Turn Ugly
Fast!
Nothing has the potential to cause
more problem than loaning money to friends or family. If anything
goes wrong the situation can quickly turn ugly. Just watch some
of those court TV shows to see the trouble loaning money to a friend
or family member can cause!
It’s pretty much common sense, or at
least it’s been said a thousand times before, don’t lend money to
friends and family. What is often missed in that warning is that
you should also not sell things to friends and family.
Here are a couple of scenarios. Your
friends are over for a Christmas tree decorating party. Two of the
guys know that you sell preowned designer men’s suits on eBay. They
ask you if you have any new stock because they could use a new sports
coat. “Sure look in the hall closet, see if you like anything.”
After five minutes both men return, one wearing a Hugo Boss suit
coat and the other is sporting a Zegna blazer.
It’s the holiday season, you’re all
friends, and even though you know you could get at least $80 each
on eBay for them, you only paid $4.99, so you tell them you’ll sell
them for $10 each. What the heck, it’s gift giving season anyway.
Then they announce their checkbook is in the car, so they’ll pay
you Tuesday when they see you next. Fast forward three months to
March and they still haven’t paid you.
Or perhaps you know a friend is looking
with his teenage son to buy a car for Junior. You have another friend
who is a self-employed mechanic and is always picking up older cars
and fixing them up. You mention to friend #2 that friend #1 wants
to buy a car for his son. Mechanic friend was going to sell the
car for $900, but since it’s a friend of yours, he tells you to
tell them they can have it for $600. You disclose all that’s right
with it as well as all that will soon need repair.
Friend and son drive the car, say they
want it and will come over with money on Tuesday. They arrive on
Tuesday with only $300 and tell friend #2 that they will have the
balance paid off in 30 days and hoped he’d understand. Four months
later and lots of pulling teeth, friend #1 dribbles in an occasional
$10 here and $20 here toward their $300 debt. Yet they have had
the car for months.
So what went wrong in the above cases?
The friends (now former friends) never asked to borrow money (to
give you the opportunity to not lend them cash, as you’ve been warned).
The seller-friends were blind-sided with the sudden convenience
of no money after the transaction had already taken place. Because
it was a friend, “c’mon what’s little leeway among friends, anyway?”
the sellers felt cornered and awkward to rescind the offer after
they had already agreed to it.
The only real solution is to never,
as in never ever, sell anything to family and friends unless you
have cash in hand, at that moment. And don’t feel obligated to give
them a deal of a lifetime. If you could get a fair price for the
item elsewhere, offer it to your friend at that price too. If you
don’t, you could be losing out on a whole lot more than income.
Friendships and families are often severed because of loan transactions
gone bad. Don’t let it happen to you.
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