Want to loan $2,000 - thoughts to mitigate risk?

[ipstudent]

What is the name of your state? CALIFORNIA

I'm interested in loaning a good friend of mine $2,000 so that he can purchase a certificate of deposit at a bank. Then in turn, with the CD in hand, he's going to get a loan from the same bank to help improve his credit score (he has NO credit, in fact, he's 18). I want to make sure my $2,000 investment into him is returned and is safe, is there anyway I can legally do this? Here are some thoughts:

- Put the CD in a trust and give him access to that trust? If I do this, can I stop him from taking the CD before it matures? I want to loan him the money but not let him access it.

- Put the CD in my name and add him as a beneficuiary? Would I need to co-sign on the loan then? Anything thoughts around this idea?

- ???

Any serious thoughts are greatly appreciated! =) Thanks again team.

 

[JETX]

Your plan is flawed. The CD will be used as security for his loan, so must be in his name. And if he breaches his loan repayment, the bank will simply take the security (the CD), leaving you with nothing.

Why not just tell him to get a gas or department store credit card, then build his credit on his payment history for the card??
Or if you really, really want to help him and minimize your risk, have him sign a written repayment agreement and loan him $500.00 to put against a secured credit card. Then, he can establish his credit in using that card.

 

[DrewfromCA]

Say What?!?!?

Huh? He wants to improve his credit score... well, at the ripe old age of 18, there isn't much he can do. He should just apply for a credit card, which can help him build credit. If he is in college, it should be a breeze to get a CC. If not, then he might try to get a secured card like JETX suggested.

What in the world does an 18 year old need to improve his score for? Does he want to get that 0% interest rate on a new car? If he has a decent job, it should not be that difficult to get a CC, but you are nice to try to help him out.

In my experience, it is not a greatest idea to loan money to a friend...