The trouble is that these loans start out with lots of heartwarming feeling. Tales of goodwill with unforeseen emotional consequences abound. There’s Blair E., who was moved to help his out-of-work friend save the farm (literally, a farm) and ended up sinking $9,200 into the property. Blair hasn’t seen a penny of it, and though he insists the friendship hasn’t suffered, neither man has mentioned the loan in two years. “I shouldn’t feel guilty about bringing it up,” says Blair, “but I do. I have more net worth than him.”
A successful brother funnels cash to his downtrodden twin, as his wife laments having married the two of them. A mother has to sneak funds to her son for a car because her second husband, his stepfather, has forbidden her to “spoil” the boy. Indeed, roughly eight million households in the United States, according to numbers derived from a Federal Reserve survey, have loans of between $400 and $500,000 outstanding to friends, relatives, and business associates. That’s about $89 billion in jeopardized love and loyalty spread out across the country. And the reality that this happy sharing frequently turns rotten isn’t new. It was as far back as 1600 that Shakespeare wrote his famous warning to the likes of Blair and Hank in Hamlet, Act I: “Neither a borrower nor a lender be;/ For loan oft loses both itself and friend.”
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When it comes to offering tender loving credit, financial advisors and gurus love to quote Shakespeare. Don’t Do It is their basic point. “It’s a disaster waiting to happen,” says Sheryl Garrett, a certified financial planner and author of Just Give Me the Answer$. “My father warned me to never ever lend money under any circumstance. His wisdom was excellent.