Lending plea

Staff Writer
Columbus Alive

"Brother, can you spare a dime?" It may sound so 1930s, but there could be a time when you find yourself asking your brother, sister, friends or relatives for money, and it's important not to strain your relationships because of it. It's best to protect yourself by being business-minded.

Richard Call, vice president of community outreach at the Consumer Credit Counseling Service in Columbus, said the biggest mistake most people make when loaning money is ignoring the possible consequences of co-signing on a loan.

"People don't understand what co-signing means," Call said. "They are equally liable for that debt. It's the same liability as the primary [borrower] of the loan."

When Call used to work in lending, he'd often warn potential co-signers that there's a one out of two chance they'll be called upon to make a payment at some point. In case the borrower defaults, the lender needs to be able to cover it and not go broke themselves.

"People need to ask themselves, can you make the payment at any point from your current budget situation? If the answer is no, you should never formally sign," Call said.

A lot of thought should go into the decision to loan money to friends or family. The Consumer Credit Counseling Service suggests not lending more than you can afford to lose, never dipping into your retirement account and researching any legal steps you could take to collect an unpaid loan.

Another question to ask: What is the purpose of loaning the money? Does the borrower truly need something, or is the cash for something frivolous?

"They probably have some credit issues along the way, or they would have been able to get money through the conventional way [through a bank loan]," Call said.

If you're going to lend money, don't just take somebody at their word - get it in writing, Call said. A formal document doesn't have to be fancy. A simple notice of the amount borrowed, the payment expectations and a witness to both parties' signatures is all you need, Call said. Many websites, such as Internet Legal Research Group or Nolo, offer sample promissory notes.

If you can live without being paid back in full, you probably don't need to get the loan in writing. But if you ever want to collect that money, make it official.

"We are too trusting of relatives and friends," Call said. "I would approach it by saying, 'I'm putting this in writing in case something happens. It's not that no one trusts each other, [but] you don't know what's happening tomorrow.'"

If things get out of hand, there's always court. Small claims courts can hear civil actions for the recovery of $3,000 or less, according to the Ohio Attorney General's office. And a quick channel surf through the television court programs turns up plenty of cases involving monetary disputes between friends and family.

In the wise words of TV Judge David Young, "when you make an obligation, it's important that you live up to the terms and conditions of the obligation."