Unlike personal loans from licensed moneylenders in Singapore, a loan to friend rarely attracts an interest rate. As a result, you need to be careful about who you lend money to avoid challenges down the road. Before we proceed and look at some of the frequently asked questions about lending money to friends, it is essential to note that research shows approximately three-quarters of people who borrow money from friends never repay fully.
Is it Bad to Lend Money to a Friend?Based on the statistic discussed above that shows most friends do not repay money borrowed from friends in full, it is not a good idea to lend money to friends. If the friend fails to repay you, you will have lost the money and a friend. To avoid such a scenario, it is wise to give them a manageable portion of the money they need based on your budget and financial obligations. In addition, if you are married or in a committed relationship, consult your spouse about the loan to avoid disagreements down the road.
Can you Legally Lend Someone Money?The first thing that you need to note is that Singapore Moneylenders Act prohibits unlicensed moneylending businesses. However, the Act does not prohibit moneylending. Giving loans to a friend or family member does not mean that you do so for profit or business gain unless there is continuity about the transactions or if you (the moneylender) lent others money readily and freely. Concisely, loans to family and friends do not require a license. It is also legal to charge an interest rate on a loan that you give to a friend or family member provided you are not carrying on the business of moneylending. On the same point, IOUs are legal. Read more on how to lend money to a friend here.
What is an IOU?An IOU is a simple contract that highlights the terms of the loan. Unknown to most people is that an IOU is different from promissory notes that are controlled/governed by the formal requirements listed in the Bills of Exchange Act.
How Do I Refuse to Lend Money to a Friend?One of the hardest things to do is to look at a family member or friend who needs financial help in the eye and say NO. The decision not to lend money to a friend could cushion you from a financial turmoil down the road, especially if you are not financially stable. Here are some tips on how to refuse to lend money to a friend diplomatically.
- Make it your policy
- Be direct and brief
- Request for additional time to think about the loan
- Offer to help in other non-monetary ways
- Do not disclose financial details or reasons why you cannot loan them money
- Give the money as a gift