The risk of giving personal loans to others

Unless you are running a licensed moneylending business, you should always think twice before lending to anyone because the risks of ending up out of pocket are considerable.

- Tan Ooi Boon

Take the most obvious risk: All it takes for you to lose all your money is for the borrower to decide not to repay the loan.

Some lenders think their money is safe so long as the borrower hands over a stack of signed cheques to indicate their willingness to return the loans. But these cheques mean little because the borrower can always choose not to deposit money in their account to honour the payments.

Similarly, a loan agreement itself won't guarantee you will be paid back if the borrower chooses to ignore it.

Of course, such documents are very useful in court disputes but if you have to resort to suing to get your money back, you would have already lost, financially.

This is because there is still a risk of not getting anything back if the borrower cannot pay up and ends up being made a bankrupt.

Even if you can get your money back, you are likely to be out of pocket for your lawyer's fees as you are not suing for a profit but to get back what is rightfully yours in the first place.

Here are two recent cases on why lenders failed to recover their money.