I Loaned and Lost $5,000. I’m Not Rich. So Why Was it No Big Deal?

I loaned money to my sister Ken is not rich.

He’s a practical, budget-conscious research analyst in his 50s. The last person I thought would be featured in one of my “stories.” You’d never pick him as a fellow member of the Oooops-I-Screwed-Up-When-I-Loaned-Money-to-a-Relative Club.

Ken and I had been friends for about 5 years when I told him about the book I’m writing, True Stories of Gold Diggers & Deadbeat Dads: How to Prevent Financial Problems With Your Friends and Family.

(I’ll talk to anyone who will listen to me. Heck, I’ll even talk to people who won’t listen to me.)

Ten years ago, he loaned over $5,000 to his younger sister, Katherine. The deal was that Katherine and her husband Paul would buy a small vacation house in the mountains. The house belonged to Katherine’s late mother-in-law and no one else in the family wanted  (or was able) to buy it.

Katherine and Paul could not qualify for a mortgage for this property.

Hey Ken — danger, danger, big red flag, dude!

But he agreed to loan the money to his sister at a modest interest rate. Their agreement, which was never in writing, was that Katherine would pay Ken back “when she could.”

Katherine hasn’t paid back any of the money.

Ken hasn’t had the pleasure of visiting the mountain house.

Over the past decade, Ken never asked his sister about the $5,000 loan. He didn’t even tell anyone else in their family.

He’s never told anyone except me.

In their family, Ken was always the responsible one, and Katherine – well, for some reason their parents always cut her a lot of slack. Ken knows that Katherine borrowed money from Dad a few times and she hasn’t repaid him either.

You might think that Ken would be angry or bitter about this “loan” to his sister, but he isn’t. At the time, he wasn’t exactly thinking of it as a gift, but he calculated that it was an amount he could afford to lose.

Ken told me, “it wasn’t a total surprise … but  I was disappointed that she failed to pay back a debt. It’s just not quite right.”

I asked Ken why he loaned the money to Katherine when he knew she wasn’t a good credit risk.

He looked at me intently and quickly answered, “Because she’s my sister. It was an opportunity for her to make a good investment. If I raised the issue, it would push us apart. My relationship with my sister is more important than money.”

Ken made a lot of the classic errors. He loaned to a relative who had bad credit. He didn’t put their agreement in writing.  They had no payment schedule. He never followed up when his sister didn’t pay.

However, Ken got one thing right: he agreed to the loan after calculating that if it all went south, he could afford to lose the money.

Ken is never the type to throw money around. But he knew that $5,000 wouldn’t keep him from being able to pay his bills or derail his retirement savings. He also understood that it could only harm his relationship with his sister if he pressured her about the loan.

I’m exaggerating when I say that his attitude was “it’s no big deal.”

If you consider a loan to a family member as a gift that will never be returned to you, you’ll be less disappointed in the long run.

Image © iStock.com/Kiyyah

Comments

  1. Bill and I did that once. We gave, knowing we’d never be repaid. Guess what? We were repaid. Huge, wonderful surprise! I wonder how often it happens.

  2. I lent a friend $5000.00. I had helped him out before and he always had paid me back so I didn’t think it was too big of deal. And I thought it was going to paid back right away. But after a few days something felt off. Couldn’t put my finger on it. Now, two weeks later he says he’ll call me so we can talk about repayment but he never does. I am by no means going to go into financial ruin but it is a lot to me. I can’t sleep, I can’t eat, mainly because that money was suppose to be used to help my fiancé with debt, and also for home improvement. Every time I see her I have this guilt. I want to tell her the mistake I made but haven’t yet. She also knows me very well as can tell something is not right with me. Lesson learned I guess but a very hard and costly lesson.

    • EC, you were very generous to your friend before, and with this latest loan. Five thousand dollars is a lot of money!

      I’m so sorry to hear that the situation is affecting your daily life. Be honest with your fiancee — you’ll both need to share all your financial details, now and during your marriage. Maybe she won’t think you made a mistake. If she does, she may be forgiving. And even if she thinks you goofed, what about her debt that you’ve offered to pay — what mistakes did she make?

      Thank you so much for sharing your personal story. Feel free to contact me and let me know how it turned out. Please take care of yourself and eat and get some sleep!

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