SAGE Talk: Lending Money To Friends And Relatives

Reminiscences of CCS first Chairman. This is the thirteenth of a series of articles by Mr Kuo How Nam (founding member and former Chairman of Credit Counselling Singapore). How Nam’s articles are scheduled to be published on first Fridays of the month.

In this article, CCS first Chairman and founding member Kuo How Nam talks about lending money to friends and relatives.

Many of you must have experienced requests from friends and relatives for money to help out with their debt problems.  Such funds are usually urgently needed and involve paying off creditors who are threatening legal action or loan sharks banging on the door or some urgent expenses to keep a family member’s failing business from folding. 

Such requests will be accompanied by tears, threats of suicide or bodily harm, appeals based on friendship and family ties.  There will be promises to repay the debts within a short time.  The decision to help is a very difficult one with personal relationships, sympathy, concern and guilt all rolled up in this dilemma.

How do we deal with this?

The first principle is to assume that whatever lent out will never be repaid.  Indebted persons may have good reasons to borrow and sincere in their desire to repay.  But the ability and the willingness to repay is another thing altogether.  Once the money is received, the friend usually disappears and remains uncontactable or makes empty promises to repay.  You may even be embarrassed to continually remind the friend to repay, if you can contact the person at all, or the person may even be annoyed at your frequent calls. 

So if you want to help, the golden rule is never to part with money that you cannot afford to lose.  If your loan comes from your savings, you will have learnt perhaps an expensive lesson on friendship and be poorer by the amount lost.

The second golden rule is never to borrow money to lend to indebted individuals.  In this case you have incurred a debt which you have to pay interest and to repay. the principal.  Of course your friend may have promised to repay you by instalments but you need to assume that regardless of what the friend says, this will not happen and you will have to pay the debt incurred by you on your own.  This may push you into difficulties as credit card debt is very expensive and repayments are egged to 3% of the outstanding amount.  If you are in default, there are very punitive overdue charges which makes the debt even harder to repay.

CCS has seen too many cases of debtors incurring large liabilities as a result of loans to friends and relatives.  Loans can be very large if used to prop up struggling business managed by a sibling or parent.  For example, we had a Vice-Principal of a school with a debt of over $200,000 to help out her father’s business.  The business failed and the Vice-Principal is struggling to repay, and her career is in jeopardy due to civil service rules on financial embarrassment.   If unresolved, this could lead to legal action by banks and bankruptcy proceedings which will affect careers and job prospects.

What should one do when approached for a loan?

You will need to find out what exactly is the problem and the financial situation of the individual.  Debtors are unfortunately desperate people and will withhold information.  You will not know if your loan will merely be just a temporary patch. Gamblers for example will continue to incur debts so long as there are willing lenders. 

What is required is a total comprehensive holistic solution to a debt problem so that the problem can be analyzed and the best solution found. 

You can ask the individual to come to CCS or even accompany the person to CCS.   The first thing CCS will do is to ascertain the debt situation – what is the total amount owed, the instalment amounts and the income available to repay these loans.  CCS will then suggest the best solution for the individual.  It may be that the debt situation is already beyond salvation and the best solution will be to go for a court organized repayment arrangement such as the debt repayment scheme.  Alternatively, CCS has various debt management programs with financial organisations and moneylenders where the debts will be restructured and interest rates lowered to allow a more orderly and manageable repayment over many years, thus resolving the debt problem.  As a close friend or relative, once you can understand the entire debt situation, then you may be more assured that whatever financial help you choose to give will be useful to resolving the entire debt situation of the individual.

If you are facing a debt issue and would like to seek assistance from CCS, attend our weekly Debt Management talks (conducted both over Zoom and in-person at our office), where you will learn more about what to do, when and how to communicate with creditors, what are the common collection actions creditors can take, what are the various debt settlement options are and what is the CCS Debt Management Programme. Click here for schedule.

After attending the talk, you can submit a request for one-to-one credit counselling. Details on the counselling session and instructions on how to arrange for an appointment will be explained during the talk.

CCS also conduct monthly Facebook Live webinars on topics such as prudent financial management and responsible use of credit. Follow CCS Facebook page to stay updated of our webinars and events.

This article was contributed by Kuo How Nam.

Published 7 July 2023.