Here's a situation I heard the other day…what do you think you should you do.
Ted, I've got a co-worker of mine and we've known each other for more than 10 years. I have always known them to be a pretty responsible person and one that never brings drama to work. We are both in our late 30's. I have a pretty good idea what they make because we have reasonably similar jobs. It was strange, but the other day as we hit the breakroom, they asked me if I would consider loaning them $7,000 for just a few months some money so they could pay off some of her debts, and then they would pay me back after they get the upcoming bonus we should be receiving in a few months.
Details: They specifically told me there were some unexpected family medical expenses that caused this 7k of debt and they didn't get into too many more details beyond that. I didn't have the heart to ask them more information about their personal finances, but now I am feeling a little bit of a pit in my stomach not knowing the entire situation and whether this is a good idea.
I have zero debt besides my mortgage and make approximately 150k. I've got a healthy cash reserve and I am a very good saver.
I wasn't really sure if I should be bringing this to my boss or whether to loan the money or handle this myself. I don't want to ruin our relationship as we work on a bunch of projects together.
I guess at the end of this, I feel very confused about what direction to go with this situation.
- Is there a way to protect myself if I loan them the money?
- Am I wrong to charge interest? I am not even talking anything crazy. Like 3% or so. Or does that seem unreasonable even if they are a co-worker of mine?
- Should I just skip this all together and deal with the aftermath of telling them that I cannot loan them money. I really do want to help them, but overall it just seems like a really bad idea?
What to do???
(Sounds like a difficult situation…..doesn't it? Here was my advice, what's yours?
- I'm not saying the relationship is going to go south if you don't have a contract, but the only way to somewhat protect yourself is to get a contract in writing. This probably won't feel so great for what they will consider to be a friendly little loan (7k isn't so little anyway), but 7k will turn into 10k, and before you know it they will have you at 15k. If you loan the money, get a contract in writing. It's just that simple. If you want to help them and want no strings attached then just consider it a gift. It's either a gift or a loan if you do it.
- Charging interest is going to be up to you. Of course, there isn't a bank out there today that charges interest at zero. However, you may be just trying to help them, so as long as you still have a contract it's up to you whether you will charge interest or not. It's amazing how much money and friendship are so inextricably tied together, but they are so think through this one carefully. If you are bent on charging interest, then just know it may cause other strain to the relationship down the road. If you are going to work with this person for the next 10 years, what will it be like down the road. What if they become your boss? What if you become their boss?
- Ultimately, you should skip this and not even consider making a loan because there are so many negative consequences compared to the possible positive one. Tell your co-worker that you completely empathize with their situation, but a) you are not a bank and b) you don't think it will be good for either of your relationships at the workplace which are currently great. It's just a bad idea overall to get into the loaning money business anywhere let alone work. If this one decision strains your work relationship, then you shouldn't have a relationship at all.
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