I was over at Girl Ninja’s place last night talking with her lovely roommates (they’re not really that lovely, they just read my blog so I have to make them seem like good people… Hi roommates). Anywho, one of them was talking about buying a “new-to-her” car. She’s a smart cookie ’cause she plans to pay cash. There is one little hiccup, however. She has to sell her current car before she has the liquidity to purchase the new car. She’d basically use the cash from the sale, plus another couple thousand from savings to fund her new ride. Obviously, this causes a problem. She can’t sell her car, without already having purchased the new car, otherwise she’d have no way to get to work, the grocery store, etc.
She’s faced with a couple options.
A) Sell her car on a Friday and buy something before Sunday is over
B) Find someone willing to take make a straight vehicle trade
C) Take out a loan to purchase the new car, sell her car ASAP, and use the sale money to pay back the loan
D) Pay me $10,000/month to be her personal chaueffer
Option A and B could be pretty difficult to work out as option A requires great risk (what if she doesn’t find a suitable car in 48 hours?) and option B may never happen (most people on Craigslist are looking to sell their car, not trade it). After discussing her options a little more, I jokingly said “Why don’t I just loan you the money so you can buy your new car, and then when you sell your current vehicle, you can pay me back…with interest.” This girl obviously knows her stuff as she responded, “No. I’m not taking out a loan to get a new car. Do you think I’m stupid?”
But what would I have done if she responded “Really, that might not be a bad idea?” Would I make the loan? I’ve never been in a situation where I’ve been asked to loan someone money. Would I do it? I’m not sure I know the answer to that question.
My guess is 98% of the time my response would be “Sorry, I’m not a bank. I don’t make personal loans.” But there are a few situations were I would consider it. The most obvious being an emergency. If my roommate called me and needed to borrow $1,000 for car repairs, I would most likely give it to him… on two conditions. 1) That he has the ability to pay me back (meaning he has a job) and 2) That by agreeing to loan him the money, I am fully aware I might not get paid back. That’s not to say I think my roomie would ever stiff me (I’d cut his “you know whats” off if he did), but because there is always the possibility I don’t get paid back. Sure, it would suck to lose a $1,000, but it wouldn’t ruin my financial situation if I did. Worst case scenario, I helped a good friend out in a time of need.
Most PF gurus teach “Never loan money to anyone!” While I think that is generally good advice, I’d be lying if I said part of me wasn’t at least intrigued by the idea. Honestly, I’ doubt I’ll do it. Mainly because I’ll probably never be asked for money. But if I am, I need to have a game plan. And right now that game plan is: evaluate the request (how much, what’s it for, why don’t they have the money, etc), likelihood of repayment, and my current financial situation (can I afford the loss if I don’t get paid back?). I’m gonna have to do some more thinking on this personal loan issue because I’m not really sure how I feel about it.
Have you ever been asked by a friend or family member for a loan? Under what circumstances would you do it? Anyone dabble with prosper.com or other lending sites? Anyone ever been “burned” after loaning someone money?