The Solution to Social Lending

You have probably been warned of the dangers of lending money to family and friends.  For the most part, this is sound advice.  According to a Money survey, 43% of readers who lent to family or friends weren’t paid back in full and 27% hadn’t received a dime.  There is obviously risk, but at the same time,  lending money to family and friends at an interest rate lower than the banks’ offers great potential for gains.

Virgin Money’s social loans (by the same Sir Richard Branson who brought you music and planes) ameliorate this risk by providing a structured way to lend or borrow money with family and friends.  The loans can be for anything, such as to start a new business, to buy a car or a home, or to finance an education.  Through its website, a lender and borrower can negotiate the terms of the loan, such as the principal, interest rate, and repayment schedule, and sign a promissory note.  Setting up the loan on Virgin Money means that there is a record of the loan.  On the one hand, the lender will have to pay taxes on the interest, which he is supposed to do anyway.  On the other, should the borrower ever default, the lender can deduct the loss from his tax return.

So whether you want to lend (after determining you have the funds to do so and the borrower has the ability to repay) or borrow some money, consider setting up a social loan.  The terms will probably be better than those from a bank, since you will be able to negotiate them with the other party. Moreover, documentation will protect the interests of both parties.  Sounds like a win-win situation to me.

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