Join Early Retirement Today
View Poll Results: Why do you charge less than market interest on personal loans?
I don't. I charge market rates. 2 14.29%
I don't. The recipient doesn't qualify for market rates so I charge more. 0 0%
I don't. I charge only the minimal AFR amount makes the loan not a gift per the IRS. 1 7.14%
As a stealthy way to be generous, so the recipient won't feel bad for accepting help. 2 14.29%
I'd feel bad about myself asking for interest. 1 7.14%
It's not worth my hassle because the interest amount is so small. 3 21.43%
I don't want to resent the hassle of dealing with interest. 0 0%
As an understood favor to the recipient. 4 28.57%
It makes the loan a favor, so the recipient owes me one. 0 0%
Charging interest might make the loan less likely to be paid back. 1 7.14%
The recipient isn't technically qualified to deal with interest. 0 0%
As a sweetener to induce the recipient into taking a loan that they might not otherwise take. 0 0%
Voters: 14. You may not vote on this poll

Reply
 
Thread Tools Search this Thread Display Modes
Do you charge less interest on personal loans?
Old 03-29-2010, 03:28 PM   #1
Thinks s/he gets paid by the post
free4now's Avatar
 
Join Date: Dec 2005
Posts: 1,225
Do you charge less interest on personal loans?

I've noticed that many people, when loaning to friends or family, charge less interest than market rates, or even less than their own time cost of money. If you have made personal loans and charged less than market rates, what is the most important reason why?
__________________

__________________
free4now is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-29-2010, 04:54 PM   #2
gone traveling
 
Join Date: May 2008
Posts: 3,864
We don't loan money to friends or relatives. If someone gets in a jam and needs a helping hand, we'll help out financially or otherwise, but not with the bi-lateral stress of trying to service a loan. Too many ways for valuable relationships to go wrong.
__________________

__________________
Westernskies is offline   Reply With Quote
Old 03-29-2010, 04:59 PM   #3
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,085
Quote:
Originally Posted by Westernskies View Post
We don't loan money to friends or relatives. If someone gets in a jam and needs a helping hand, we'll help out financially or otherwise, but not with the bi-lateral stress of trying to service a loan. Too many ways for valuable relationships to go wrong.
ditto.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Old 03-29-2010, 05:32 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,457
Don't loan. It's either a gift, or nothing.

Audrey
__________________
audreyh1 is online now   Reply With Quote
Old 03-29-2010, 05:50 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Jun 2006
Posts: 1,666
Ditto to the above, gift or nothing.
__________________
"We do not inherit the earth from our ancestors, we borrow it from our children.
(Ancient Indian Proverb)"
Zathras is offline   Reply With Quote
Old 03-29-2010, 07:26 PM   #6
Full time employment: Posting here.
 
Join Date: May 2008
Posts: 589
Ditto, prefer never to loan, just gift. Honestly think this will be the overwhelming answer.
__________________
plex is offline   Reply With Quote
Old 03-29-2010, 07:56 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
freebird5825's Avatar
 
Join Date: Feb 2008
Location: East Nowhere, 43N Latitude, NY
Posts: 9,017
Ditto to the n-th power, do not loan money. Bad business all around.
__________________
"All our dreams can come true, if we have the courage to pursue them." - Walt Disney
freebird5825 is offline   Reply With Quote
Old 03-29-2010, 07:59 PM   #8
gone traveling
 
Join Date: May 2008
Posts: 3,864
Interest in this thread is compounding.
__________________
Westernskies is offline   Reply With Quote
Old 03-29-2010, 08:02 PM   #9
Thinks s/he gets paid by the post
kyounge1956's Avatar
 
Join Date: Sep 2008
Posts: 2,171
My parents loaned me the money for the down payment on my first house. It was definitely a loan, but so long ago I don't remember if they charged me interest, and if so whether it was market rate or below. If any of my nieces need money for a house, it will be a gift, out of Savings Bonds I bought for the purpose (unless they've already been given the money for college expenses). I was recently asked by a family member to cosign on a college loan. My reply was that I wasn't financially in a position to be able to do so (and I'm not), but I was able to go halvsies with her mom to replace her stolen laptop, as a gift, so that's what I did.

I've never been asked for a significant loan by a friend. I think if I were, my response would probably be the same as many others here—I'd either give them the money or not, but not lend it.
__________________
kyounge1956 is offline   Reply With Quote
Old 03-29-2010, 09:28 PM   #10
Recycles dryer sheets
 
Join Date: Sep 2006
Posts: 174
It depends. For cases where someone (family) is in a tight spot and just needs some help, but who is otherwise acting responsibly, it is either a gift or a "pay me whenever you can" deal if that makes everyone feel better. These are with money that can be lost if it goes that way and are mentally accounted for as gifts.

But I do think there is a place for more structured intra-family loans. Offering a mortgage or similar loan to a responsible family member, for less than market rates, but for similar to what might be available in 5 yr CDs, for example, can work out well. As a matter of extended family wealth preservation, it's far better for a smaller amount of interest to stay in the family than for a larger amount to go to a bank or mortgage company. The borrower can save significantly on annual cash outlay and the lender gets a modest income stream.It's simple to set up a basic loan agreement, payment table and auto-transfer of monthly payments. It's a reasonable way help out with larger amounts than one is willing or able to gift. The key is trust, a clear understanding, automating transfers and a borrower with a dependable income.

In-laws helped us with low interest mortgages when we were starting out, saving us a bunch along the way, for which we are thankful. Now we are able to help a retired family member (who is living on a limited but stable income) in a similar way.
__________________
rockyj is offline   Reply With Quote
Old 03-29-2010, 09:32 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,457
Quote:
Originally Posted by Westernskies View Post
Interest in this thread is compounding.
Badda Bing!
__________________
audreyh1 is online now   Reply With Quote
Old 03-29-2010, 09:33 PM   #12
gone traveling
 
Join Date: May 2008
Posts: 3,864
Quote:
Originally Posted by rockyj View Post
It depends. For cases where someone (family) is in a tight spot and just needs some help, but who is otherwise acting responsibly, it is either a gift or a "pay me whenever you can" deal if that makes everyone feel better. These are with money that can be lost if it goes that way and are mentally accounted for as gifts.

But I do think there is a place for more structured intra-family loans. Offering a mortgage or similar loan to a responsible family member, for less than market rates, but for similar to what might be available in 5 yr CDs, for example, can work out well. As a matter of extended family wealth preservation, it's far better for a smaller amount of interest to stay in the family than for a larger amount to go to a bank or mortgage company. The borrower can save significantly on annual cash outlay and the lender gets a modest income stream.It's simple to set up a basic loan agreement, payment table and auto-transfer of monthly payments. It's a reasonable way help out with larger amounts than one is willing or able to gift. The key is a clear understanding, automating transfers and a borrower with a dependable income.

In-laws helped us with low interest mortgages when we were starting out, saving us a bunch along the way, for which we are thankful. Now we are able to help a retired family member (who is living on a limited but stable income) in a similar way.
Welcome to the forum! Tell us more about yourself in the Hi I am.. Section....
__________________
Westernskies is offline   Reply With Quote
Old 03-29-2010, 09:55 PM   #13
Recycles dryer sheets
 
Join Date: Sep 2006
Posts: 174
Quote:
Originally Posted by Westernskies View Post
Welcome to the forum! Tell us more about yourself in the Hi I am.. Section....
Thanks for the welcome, Westernskies. Actually, I've been an intermittent poster for some time under "sparkthewonderdog" (long story). I just changed my ID to simplify things a bit. Hope it's not a breach of protocol. I've added that to my signature for the transition.
__________________
rockyj is offline   Reply With Quote
Old 03-29-2010, 10:07 PM   #14
Recycles dryer sheets
 
Join Date: Sep 2007
Posts: 195
I had the other end of the loan - a few years back I had a few thousand in credit card debt (some medical and laid off, but turned out ok all round), and I approached my Dad about a loan. He had a home equity line, so I offered him 1% over his borrowing costs, put together the spreadsheet, we drew up a contract and signed it, and I managed to pay him off about 4 months early. My dad's an attorney, I'm an engineer, your mileage may vary.
__________________
seabourne is offline   Reply With Quote
Old 03-29-2010, 10:17 PM   #15
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,846
Quote:
Originally Posted by rockyj View Post
Thanks for the welcome, Westernskies. Actually, I've been an intermittent poster for some time under "sparkthewonderdog" (long story). I just changed my ID to simplify things a bit. Hope it's not a breach of protocol. I've added that to my signature for the transition.
No problem! Since only one account is permitted per member, we merged your sparkythewonderdog account into this rockyj account. This way you will have the combined post count. Welcome back!
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is offline   Reply With Quote
Old 03-29-2010, 10:40 PM   #16
Recycles dryer sheets
 
Join Date: Jun 2008
Location: San Antonio
Posts: 85
We are loaning money to my parents as a way to keep them from doing a refi on the reverse mortgage - the fees are just too much. We are charging them 1% over prime (we pay prime on our HELOC), and the loan is to be paid back when they sell the house. They just let us know when they need some cash (for new roof, that type of thing) and we write a check. Keeps the money all in the family! And yes, we have it documented in writing and copies are with us and my brother (who is glad that he doesn't have to deal with it!)
__________________
nanannjen is offline   Reply With Quote
Old 04-26-2010, 10:11 PM   #17
Dryer sheet wannabe
 
Join Date: Apr 2010
Posts: 15
if you do a loan, it better be a "pay me back when you can loan" or you can almost count on some relationship tension, which isn't worth it in my opinion. You could be the hardball-playing family member that demands payments, but in the long run if you end up being the family member nobody likes then the money really won't be fun anyways. Being rich and alone doesn't sound like a good time to me
__________________
kimber6 is offline   Reply With Quote
Old 04-27-2010, 09:21 PM   #18
Moderator Emeritus
Khan's Avatar
 
Join Date: Aug 2006
Location: Pine Island, Florida
Posts: 6,868
Send a message via AIM to Khan
I don't do loans. I do gifts. If you must, pay it forward.
__________________
"Knowin' no one nowhere's gonna miss us when we're gone..."
Khan is offline   Reply With Quote
Old 04-27-2010, 10:00 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 5,459
First loaned to my parents when I was 14? Really think it was designed as a learning experience for me. Have since loaned to my brother when a divorce called for some serious bucks. Charged a bit less than I was earning in savings. Didn't get paid back for some years, never mentioned it, out of the blue he paid me back including interest, or some major portion thereof - didn't check. Very glad to have him do the right thing. One likes to have faith in one's brother.
__________________

__________________
calmloki is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Virgin Money - TPA for Personal Loans chinaco FIRE and Money 2 12-28-2008 05:36 PM
Real Interest Rates Charge Ahead haha FIRE and Money 7 07-08-2006 09:48 AM
Interest Only Home Loans - Different Perspective Craig FIRE and Money 23 08-02-2005 10:24 PM
Educate Yourself: Interest Only Loans Tommy_Dolitte Young Dreamers 1 07-10-2005 10:05 PM

 

 
All times are GMT -6. The time now is 07:49 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.