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Loaning a friend money... What could go wrong?
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2011 Mar 14, 10:56am 22,704 views 77 comments
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American in Japan
2011 Mar 20, 11:17pm
A friend in need should help, but how much is this need really? If the one who receives the money is living in luxury because of his/her friend's gift (especialy when the friend is frugal) something is wrong.
Interest was always charged at a rate that was a good deal for both parties.
At this juncture, it may be good to point at that the IRS sets a floor on the minimum interest rate that is charged. Well, you can go lower than that rate, but the you still owe the IRS taxes on phantom income based on the imputed rate. As eHow points out, the one nice part about this law is that it requires you to document the loan with at least some paperwork.
I don't know what you mean by "at this juncture..." Our family loans were always documented with a signed contract. Any loan contracts were added to my parents' trust, so that if any of us adult children had an outstanding loan at the time of their death, the balance would be deducted from that person's inheritance. At my parents' age, all their money is in cash, almost no stocks or other investments. As I'm sure you know, CD rates have sucked for years. Anything my parents can get over CD rates is a win for them. Interest is always between CD rate and lowest credit union rate for a vehicle loan. That's a win for me.
I think he already gave his (former) friend the money and now regrets it.
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A good friend is trying to refinance his house, but can't qualify because of his unfavorable debt to income ratio. So, his mortgage broker told him that if he can pay off 25K in credit card debt, then he can qualify for the refi, and pull out 25K in equity. His monthly payment will drop from $3k to $2200, so it will be a relief if he can make this happen.
His dad will loan him 15K, so he needs another 10K from me. My concern is that he could pay off the 25K credit card debt, then somehow not get the refi, or not be able to get cash out on the equity.
Is this a ridiculous risk on my part? What other questions I should be asking?
I realize this question begs snarky responses, but please try to keep it to a minimum.
BD
#housing