New online tool on way to manage loans between friends and family

An Australian online loan management tool is coming to New Zealand. Photo / 123RF

A new online loan management tool will launch in New Zealand this month, but questions have been asked about the level of protection for users.

Credi.com started in Australia in April and provides the online process to formalise loans between friends or family. By this week more than $31m worth of agreements were live.

Credi chief executive Tim Dean, a former university economist who has also worked in accountancy and online digital finance, said New Zealand was attractive because of its proximity, and because "the need [for the service] is just as great", citing publicised falling outs between families over informally-agreed loans.

"The rule of life is don't borrow from family ... but the evidence says that millions of Australians and obviously millions of New Zealanders borrow from their friends and mates and they do it without any documentation.

"Our programme is designed to address a need that is there because the existing solutions are either too expensive, unavailable and therefore don't get used."

But Auckland District Law Society presidents Joanna Pidgeon, principal at Pidgeon Law, said while drawing up a loan agreement was simple, both parties should seek independent legal advice.

"Recording [a loan] in writing is better than not but I don't know that it would adequately protect people ... you don't have that independent advice for each party."

Dean confirmed they did not offer legal advice, according to their terms and conditions.

Pidgeon said independent advice meant people went into the agreement aware of what could go wrong, and how that would be dealt with, such as if property values went down and the borrower could not honour the loan agreement.

"[The problem with not getting legal advice is] you don't know what you don't know."

Steindle Williams Legal lawyer Tony Steindle said it was good to highlight the importance of documenting family loans.

"Because, 50 per cent don't."

But other factors, such as the potential flow-on effect on wills or relationship property, might not be clear from using an online tool.

"If you lend to one child, does it have a prompt to say change your will [to protect your other children]?"

Auckland mortgage broker Malcolm Knight said there was a huge amount of "mum and dad" lending for first home buyers, but there was normally a high level of trust and a good relationship in families that did so.

However, when sought, formal arrangements were usually done by a lawyer, something he recommended.

"I wouldn't see [an online tool] have a huge niche, because it's really simple to set up through a solicitor."

Dean said just under a third of Credi's loan agreements were property related.

It cost just under $100 to make an agreement, which involved the same rigour as at a bank.

"Interest is counted ... you can have annual repayments, monthly repayments, you can have fees. We provide all the reminders to the borrower and lender to keep up to date and the account up to date."

The average interest on the platform was 1.5 per cent, which showed people's reasons for lending were altruistic.

"People are lending millions of dollars to friends and family, not because they want to make money out of them, but because they want to help them out and they just want to have a structure that means they don't have to talk about it, and if there's ever a problem 'this is what we said, there's no dispute'."

Agreements were legally binding under the jurisdiction of the country of the borrower.

Credi were not subject to regulation because their service was not for commercial lending, he said.