Fatal Financial Favors

[Valerie S. Johnson]

By Valerie S. Johnson

Let’s say a friend or family member wants a financial favor. You genuinely want to help, or you feel pressured to do so. What types of favors can become fatal for you?

1. Lending money.

The minute you agree to be YouBank for a friend or family member, you change the nature of your relationship forever, and it’s usually not for the better. Even borrowers with the best intentions may end up reneging on their promises and they fail to pay you back. You lose your money. Worse, your relationship may sour.

If you lend money, it’s best to assume that you are giving a gift that will never be repaid.

2. Co-signing loans.

If you co-sign a loan, you become equally responsible for repayment in full. If your friend or relative stops making payments on the car loan, the bank will require you to pony up even if you don’t drive the car.

The end result can be much worse than getting stiffed for a personal loan. Your credit record will probably be damaged by the primary borrower’s default. It can take a long time before your credit recovers.

3. Authorizing credit card users.

Let’s say you have a credit card, but your friend doesn’t. The friend needs it for some transaction, such as renting a car. If you designate the friend as an authorized user (rather than a joint user), he or she gets the best deal of all. They have carte blanche to use the card, yet no legal liability for payment. If they don't pay, you're stuck with the bill, and the bank won’t care what kind of private agreement the two of you had.

One of the worst case scenarios is when a couple divorces, and the settlement agreement stipulates that the authorized user will pay the credit card bill. If they don’t, you usually have no recourse with the credit card issuer, because it is not bound even by a legal divorce decree. You are still liable to pay the bills, and any missed payments may adversely affect your credit.

So be very careful when someone asks you for one of these types of favors. It could turn out to be fatal for your financial life.

[krayziebone33]

I lent my roommate five dollars the other day with the notion that he would pay me back as soon as we got home later that night. The reason I had that notion was because he told me that he had to attend a meeting with a five-dollar cover and he left his bill sitting at home. He did not want to drive home, which was in the opposite direction, to get the bill and risk missing the first few minutes of the meeting. It has now been about 6 days and I have not seen the money nor have I heard anything about being repaid anytime soon.

[ifeel100]

When i was still study, I borrow $100 from my pocket money to 1 of my fren (actually jst my gf's so-so fren only), she promised me tt wil pay me bck asap w/in a week... Later my gf knew it, she scold me said that ppl was always cheat ppl around, u better chase bck ur $.

Bt i didn't coz if tt little $ reveal a ppl truth character, tt's worth... until now, few years later.. me & she no longer a fren anymore, there goes my $ .. gone in vain...

[jIM_Ohio]

Don't forget about allowing family members to move in.

My father in law got in a tight spot... he moved in with us. 3 years later he was still there. We finally had to ask him to move out. He paid a modest amount and the 2 year promise to get back on his feet needed another 1.5 years. I was not willing to see if he knew what he was doing.

He then tried to move into his son's house... son said no.

I have a friend which allowed his mother in law to move in. She agreed to pay rent, and does not pay most months. She even joins them for dinner when they go out and does not pay.

Even hidden costs of doing favors adds up.