Contract for loan from a friend

September 11, 2023 11:57 AM

I'm raising money because I want to move to a town that will have more professional, personal, and medical options.I'm on SSDI (disability) so funding is a huge obstacle, especially as more medical bills have come up. Friends have helped my GoFundMe, but I'm still around $2000 short. Thinking of asking a friend for a loan and wanting to make sure it's as easy and fair to her as possible.

I am pretty sure that this friend will do it and is unlikely to be picky about repayment terms. However, I want to be sure I'm as thorough and fair as possible because I'd be so appreciative.

This friend has been financially generous and supportive in the past, even sometimes sending funds I didn't ask for when she sensed things were rough. I doubt she'll be offended by my ask, or that this will ruin our friendship.

I'm trying to figure out when to start repayment (like x number of days after move?) and how. Could this be auto-debited from my account to hers?

I can commit to a small amount sent from my monthly check for sure. I do freelance writing work, which brings in money but isn't consistent. I could pay her from that work, but of course I don't know when I'll have that work. I'll also be looking for something reliable, like a part-time job that's a few hours a week done remotely.

Finally, I don't think she'd ask for interest, but I'd pay a little.

So I guess my questions involve a) when to start repayment b) how to have money directly transferred to her on a certain date and c)how to have a handle on how much to pay, given my fluctuating income.

If you have done something like this and have any advice, please share that too.

posted by mermaidcafe to Work & Money (6 answers total)

If your friend gives you money and isn't picky about repayment and it hasn't hurt your friendship, she is giving you gifts. She doesn't expect to see that money again, she wants to know that you're doing okay. Figure out some amount that you can routinely give out of your check and promise that, starting a few months after your move (there are always unexpected moving costs). Your bank probably has a bill pay feature that could send money automatically.
posted by momus_window at 12:35 PM on September 11, 2023

From what you're saying, I think your friend is likely to consider this a gift. If she lets you pay her back, you can use whatever terms are convenient and possible and don't cause you hardship, which is good because it sounds like your income after moving might be shaky and unreliable. If you resolve to pay her back (in your own mind) that's what's important, not writing up some terms that might not work out to be realistic. You need to talk to her, not us, to figure this out. There's no standard formula for this.
posted by fritley at 12:36 PM on September 11, 2023

Another thing I wanted to say, and I'm still learning this too, it's no easy thing:

If she can, and wants, to help you out, just accept it and say thank you. It's ok to accept help when you need it. That means you're part of a loving community. Help flows around in all directions over time.
posted by fritley at 12:40 PM on September 11, 2023

I have loaned money to friends when the amount felt a little bit too big to be a comfortable gift amount. The thing that helps me the most (as the giver) be chill about the loan is when there is fixed regular repayment. I don't really care how much but just knowing that the other person takes the repayment seriously and that money comes without me ever having to ask or even wonder if they remember. So, if I was your friend, I prefer a smaller payment that you are sure you can really afford every month, especially if you can set up an autopay system so it just automatically shows up in my account would be perfect. For me, the predictability and never having to talk about it are the highest priorities - don't really care as much about interest or how long it takes to pay it all back. Similarly, when something happens that the person paying me back needs to miss a payment, communication in advance and plan for how to adjust would always be acceptable to me.

So my advice is first to ask your friend what they want but be prepared to make a proposal that feels comfortable, sustainable and predictable so that the details of the loan can just happen in the background of your friendship and your friend will know that you will take care of your commitment to repay without any action or worry on the friend's part.
posted by metahawk at 1:31 PM on September 11, 2023

So if you want this to be a "real loan" in the us, that means the minimum interest rules apply and you are required to charge a (fairly low) interest rate. It also increases the amount of paper work you need to file. $2k is well below the gift limit that the IRS cares about, so if this is instead considered two separate gifts then no forms are generally required. I'm not sure if the SSDI income restrictions apply here as I am not an expert.

The last time I did something like this I went with a gift plus a semi formal email saying that the person intends to pay it back when possible after x time. It probably has no legal importance, but it provides a record of what everyone did actually agree to which both sides may forget in a few years otherwise. Having a proper record reduces the chance of future drama
posted by JZig at 4:05 PM on September 11, 2023

Fully agree with metahawk. I lent a friend money a year ago (actually she just never paid me her portion of a houseshare; if I had actually agreed to "loan" her the money I would have made it a gift in my head) and when she's asked I've told her repeatedly she can just set up a small repayment. Instead she's spent money on non-necessities while paying me back nothing, and I'm resentful in a way I would absolutely not be if she was paying me literally anything.
posted by Threeve at 5:30 PM on September 11, 2023