A friend wrote to me once from a homeless shelter. She got into a tax jam because she loaned all her money to a guy who never paid her back, and then she lost her job.
My friend struggled to understand what had happened. From his point of view, she was just a victim of bad luck.
The damage was done, but I tried to prevent a future recurrence. I wrote:
“Dear Dee,
“Your decision to lend a friend nearly $700 showed great goodwill but little wisdom.
“Rule #1: Never lend money (or co-sign a loan) unless you are prepared to deal with the situation if for some reason the money is not repaid.
“Rule #2: Never lend all your savings to anyone. No exceptions. Looks like the $700 was all you had.
“Having cash on hand right now doesn’t mean you have cash to spare. Even though it’s in your hands, the next few months of rent and other expenses are already lining up to take your money away.
“You wrote that you ‘had lots of money’ when you extended the loan. In retrospect, you didn’t. You are now in a shelter because the money you lent was needed for your own future expenses.
“Money can fly out the window very quickly if you allow it. Unless you’re a Supreme Court judge, you don’t have job security.
“I don’t think a real friend would have taken your money.”
Dee then lamented that her dear friend Theresa was also an unfortunate victim of circumstance. Theresa had lent her car to a male friend who never returned it. In the end, Theresa wondered whether to report the car as stolen.
I wrote to Dee: “Your friend Theresa lent her car to a thief. How well did she know this man? And for how long ? Will she lend her car to anyone? Has she eliminated this thief from her life, or does she still think highly of him? Remember that the owner of a vehicle or home will always bear some legal responsibility for illegal activities that take place inside.
What is true. I once read that a grandmother lent her car to her reckless and irresponsible teenage grandson. She was successfully sued for all she was worth when the grandson used the car to commit a crime.
Twice in my life I have lent my car to others. Once for two days, once for three. And both times I got the car back with no problem. I knew who I was lending to. And I loaned the car out only to help trusted people who needed the wheels to do their job, while their own cars were being repaired.
In 1984, I lent my car to a colleague named Bob Abramowicz, after he unsuccessfully pleaded with the boss for money to rent a car. Bob was a salesman who spent most of his day on the road in his car. We were colleagues who got along well, but not really friends. But I felt he was trustworthy and responsible.
Bob never asked to borrow my car. But when I heard the argument from my perch in the newspaper office – and heard the boss say that if Bob didn’t make his rounds he’d be fired – I quietly pushed Bob aside and offered him my car until his is fixed.
Before accepting, a super surprised Bob asked me if I didn’t need the car myself. (That was another point in his favour.) I explained that I had started working at the newspaper before owning a car, that I always knew how to get around by bus and that I didn’t mind to go back to the buses for a few days to help him keep his job.
He returned the car at the end of the week spotlessly clean and with a full tank of gas.
I would never have lent the car to someone who needed it for personal use. Only to cling to their work. And only if I trusted them.
The second time, a decade later, for someone who drove back and forth every day delivering snapshots from a film factory to pharmacies and photo shops and picking up film that had been dropped off for development .
But even careful fund managers sometimes learn the hard way. Once a colleague from a theater troupe needed a lot of dental work and the dentist was offered a big discount if cash payment was made in advance.
I had money aside, my colleague didn’t. So I lent it. At one point during the refund process (which was pre-paid), we disagreed by one over the amount of $100 installments that were refunded.
Neither of us was trying to deceive the other. In the end, I realized the friendship was worth over $100, so I followed my colleague’s numbers.
If I was asked for a similar loan today, I would include documentation in each repayment, showing all parties where the loan stood.
To lend to anyone who borrows is to get in trouble. Do you know the person applying for a loan well? If it’s someone you’ve been dating for a month, it’s too early to consider that person a friend — and way too early to judge whether they’re a good loan risk.
Arthur Vidro is one of Eagle Times’ recurring financial columnists.