Handling Loans From, To Family, Friends

It Can Be Awkward, But Ray Martin Offers Pointers To Help Make It Work

(CBS) 

If the borrower doesn't repay on schedule, what's the best course for the lender to take?

The reason the promissory note is important is that it spells out the terms of the loan and a repayment schedule. If the borrow can't repay on schedule, you need to discuss with him or her some options for how to make the missed payments. The options can include adding the missed payments into the remaining payments or adding the missed payment to the end of the loan.

Since the loan is between friends or family members, does it have to be reported to the IRS?

Technically, you don't "report" loans to IRS, but what you need to do is to decide if this is going to be a loan or gift. If it's a gift and exceeds the current $12,000 annual gift limit, then you may have to report it as a gift by filing an annual gift tax return. If it's a loan, you should have a promissory note and charge fair rate of interest (the AFR, or Applicable Federal Rate). The interest someone pays could be considered interest income to the lender.

What if the person you ask for the loan says no, or "I don't have it?"

You should consider some alternatives. If they say they're unable to come up with the cash to loan to you, then ask them if they would be willing to be a co-signer for a loan from a bank. Often, a person needing to borrow due to financial difficulty will also have some damage on their credit reports and low credit sores. That results in high interest rates and extra fees. But interest rates on loans where there's a co-signer with good credit can be about half what it is when taking out a loan without a co-signer. But the co-signer is responsible if the borrower defaults on the loan and would need to make the payments to avoid the borrower's default from hurting their own credit history and credit score. It could also hurt the relationship.

Another alternative is to check out peer-to-peer lenders. More and more people are said to be turning to such lending services, which facilitate loans between related and unrelated people. In essence, these peer-to-peer lending services enable a cash-strapped individual to get a loan from another person who is willing to lend out his or her own money. Typically, the rates on these loans can range from 8.5 percent to 10 percent and can be found on Web sites such as Prosper.com and Lendingclub.com.

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EQUATION OF THE DAY:
FED LENDS OUR $ TO BANKS FOR 1% (PLUS) WE BORROW FROM BANKS @ 10 TO 20% (PLUS) 8% TAXES (EQUALS) WE FOREVER LOSE (PLUS) FED & BANKS WIN (MINUS) TRUTH (EQUALS) DEPRESSION (TIMES) MORE LIES (EQUALS) POLITICIANS (PLUS) INVESTORS (DIVIDED BY) GREED (MINUS) LAW (MINUS) GOD (EQUALS) REVOLUTION!!!

EQUATION EXPLAINED:
10 YEARS AGO-ALL OVER THE NEWS-"PEOPLE HAD TO CHOOSE-MORTGAGE PAYMENTS OR GAS FOR CARS". THEY CHOSE GAS-THE MORTGAGE INDUSRTY CRUMBLED-FED SAYS SOME FAULTY PAPER AGREEMENT BETWEEN BANKS AND INVESTORS CAUSED IT-WHEN HIGHLY PAID FEDERAL ECONOMIC GURUS LOOKED THE OTHER WAY-OIL COMPANIES REAPED $60 TO $80 MILLION A YEAR (TIMES) 10 YEARS = $800 MILLION (ONE COMPANY ALONE)-NO WONDER THE %u201CFAILOUT PLAN%u201D IS NOT ENOUGH%u2026 FORESIGHT AS GOOD AS HINDSIGHT-WHATEVER IT IS, THE PEOPLE MUST NOW PAY FOR IT.

FAILOUT PLAN IS TO BAIL OUT ILLEGAL IMMIGRANTS WHO BOUGHT AMERICAN SOIL VIA FANNIE AND FREDDIE-THEY GOT BAILED OUT FIRST TO COVER TRACKS, PLAN NOT WORKING FOR ANYONE ELSE. AFTER GOV%u2019T APPROVAL & MAE, MAC BAILOUT - GURUS CHANGE- WANT TO INVEST IN BANKS INSTEAD OF HELPING PEOPLE-NOW GURUS ADMIT ECONOMY IS IN A SLOWDOWN.

PRICE OF OIL COMES BACK DOWN, CONSUMPTION NEVER CHANGED.

ABORTION IS OK, BUT THE BILL IS ON FUTURE GENERATIONS THAT WILL BE KILLED, AND THEY ROB THE RETIREMENT EGGS OF US ALL.

THIS IS WHY WE HAVE AN ELECTORAL REVOLUTION-PEOPLE WANT CHANGE-IT WILL NOT COME FROM POLITICIANS.

THIS IS A BALANCED BUDGET-FOR THE GREEDY!