The risk of lending money to relatives and friends

There is much wisdom in the phrase “neither a borrower nor a lender be”, especially when it comes to giving loans to relatives and friends because relationships will sour if the loan is unpaid.

- Tan Ooi Boon

You should always think twice about lending money to those with financial woes unless you are willing to forgo the sums just to help them.

Forget about making money on the side by charging an interest because the Moneylenders Act will bar you from recovering your money if you are running a loan business without a licence.

While the law does not bar you from charging interest for a loan to a friend, a person would be deemed to be operating an illegal moneylending business if he or she is “ready and willing to lend to all and sundry” and not just to friends or relatives.

Here are two cases involving lenders who faced problems in getting back their money from borrowers.

LOAN OR INVESTMENT?

A man tried to get his borrower to honour a $2 million IOU note, but he ended up being accused of being a loan shark because the original loan was just a fraction of that amount.