Answer

Dear XXXXXXXXXX,

 

A smart question really.

 

My advice would be straight and clear. You should lend her the funds yourself. This is because, if you put funds in a savings accounts earning 5 % and the the banks lends it at 10%, you are incurring a loss on your account of NET 5%.

 

This is because, the bank is giving you 5% and then charging you 10 % for the loan amount and thus it is charging you a net of 5%. This is because whenever a bank lends on your account funds, it creates a lein so that i case of default, the money is blocked and the bank is in a safest position. The bank will seize your money from your account to recover your neighbor's dues. And further worse, you cannot sue your neighbor for this as your have not lent him/her directly.

 

Therefore, as much as I understand from the question , it would be advisable to lend it yourself after adequate paperwork so that i case of default, you can sue your neighbor and in case of regular repayments, you earn respectable interest on it.

 

I hope the above helps,

 

Regards,

Edited by Milan Vaishnav on 4/7/2009 at 8:59 AM

Expert:	Milan Vaishnav
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Answered:	4/7/2009

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