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SOCIAL LENDING
ing to use our service because they are just starting to hear about it. It has only been in the last two years that such personal fi nancial tools have become available and known about, so to our customers it makes sense to use us rather than go off the books.” By building upon established emotional connections and trust, Lendfriend is free to focus solely on utilizing its technology to prepare, mediate and resolve its loan arrangements, using smooth and sophisticated soft ware to ensure transparency, accuracy and fairness for both parties. “We are basically a soft ware service,” Kuchar says. “Our main goal is to protect the relationship from the stress that invariably comes from managing money. This is achieved via step-by-step guidance through the loan. So at any point we provide a task list of what’s next, what’s been paid etc. We send e-mail reminders and constantly keep pinging both parties back and forth so they know what to do. And we keep the process very formal.” Lendfriend provides an official, electronic record of the loan whereby both parties can log into their account and view its progress. “Promissory notes and agreed terms are always visible, and all payments through PayPal are fully recorded. The loan parties can record whether or not they forgave a loan payment, which is optional. Parties are also free to make off-schedule payments, larger payments and even late payments – our soft ware can recalculate all eventualities, which adds flexibility to the customer,” says Kuchar. With a loan agreement mediated by Lendfriend fully and officially ‘on the books’, parties are also protected by, and subjected to, the standard credit procedures and legalities they would be had they gone through the more traditional channels for credit and borrowing. “From a legal standpoint,” reveals Kuchar, “we suggest that the lender make a promissory note on their behalf, and secure the loan with some collateral, and even though it is lending between friends and family, we will be adding credit scores and credit reporting in 2011.” Th is service will be optional: if the two parties do not know each other very well (or perhaps they know each other too well), they can agree on the level of credit visibility prior to arranging the loan. “Th is is an online negotiation they can have,” says Kuchar. “Similar to the way a lender and borrower can draft the loan proposal between them, deciding on payment terms and dates for example, they can also negotiate upon credit reporting. We will be working with the credit agencies, so using Lendfriend can actually help improve, or indeed damage, one’s credit score.” For lenders who use Virgin Money and Lendfriend, there is always the potential danger that they are lending to individuals who were unable to obtain money through conventional channels, and there is almost always a reason for this. Having said that, with fewer credit options available, perhaps the sober visage of an expectant friend or family member, eager to know when the next repayment will be made, will encourage many of America’s youth to become more fi nancially responsible, more quickly. ■
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To lend or not to lend? If your offspring are still too reliant on you for support, FST US suggests a few tips on how you can help them become financially independent without sinking into debt.
Can you afford to loan? You shouldn’t be loaning any money if it means you are putting your own finances in jeopardy. Even if lending to a child or fellow loved one, be prepared for the worst-case scenario – that they might not pay you back. Ever. Assess whether you can fully write off the sum. If not, it may be more helpful in the long run to work with your child to find another solution to their problem.
Draw up a loan agreement. Before proceeding with a loan, you should ensure you have drawn up a formal agreement. You should detail all terms – the amount borrowed, any interest, payment terms – and note down how the money will be paid back, with an acknowledgement that receipts will be issued and delays will not be tolerated. You could even make provisions for penalties if you are feeling particularly hard-nosed. This is where sites such as Lendfriend and Virgin Money can prove particularly useful. Never give handouts. Paying for college is one thing. Maybe covering a couple of credit card bills once they’ve graduated is also permissible. But by simply giving in to demands for cash handouts, you are sending out a dangerous message. Let your adult children know that you will support them in other ways, but financial bailouts are, post-college, off limits. They might not like it at first, but will soon appreciate your stance, become more self-confident and grow into financially savvy individuals.
Don’t be afraid to say ‘no’. The sooner young adults get used to hearing this, the sooner they will start taking greater responsibility for their actions. But be fair, too – if you can see that their predicament can be eased by the careful provision of a loan, proceed. You can then teach them a valuable lesson without resorting to preaching or moralizing, which is something they certainly won’t thank you for.
12/11/2010 14:32