Loan to/from family - Update post 30

[debthaven]

Have you either borrowed or lent money to a family member? (A real loan, ie one that needs to be paid back, NOT A GIFT)

We were planning on borrowing from the bank for our new windows and to repaint the outside of the house. We can pay for most, but not all of it. We would need to borrow about 15K. 

Our DS2 is VERY insistent about lending us the money. Yes, he can afford it.

I am pursuing my request with the bank to see what the current interest rate is. We would insist on paying DS2 the current interest rate (2.9%). However we would also be very happy to save on the insurance, which is quite hefty at our ages (63 and 66).

It's very tempting, mainly because of the price of insurance. 

We would definitely have something formal written up, so that if DH and I both died tomorrow, DS2 would be reimbursed before our estate was distributed.

We have excellent relationships with all our kids, both financially and otherwise. 

Another reason I like this arrangement is that I would want us to pay DS2 back ASAP, so the loan would hang around for much less time if it came from him rather than the bank. 

Has anybody had any experience with this? Am I crazy to think this would be OK?

[TheOtherMe]

I have borrowed money from friends, always with a written agreement and the current interest rate.  I made it a priority to pay the money back ASAP.  

Since you and your DH are the borrower, I think you know best if it would be okay.

[busymom]

DH & I borrowed some money from my Dad when we were in the early years of our marriage, and couldn't afford to replace a dying car.  We did it as a business transaction, where we filled out formal paperwork, including the consequences if we missed any monthly payments.  We treated the loan as seriously as any bank loan, and did pay all of the money back.


Normally I don't recommend dealing with family, but if you're sure it wouldn't place a hardship on DS2, then I don't see why not.  You're not the type of person to stiff him, after all.  

[Tennesseer]

Around 1976, married friends of mine asked to borrow money from me to buy a bedroom set.  I was making good money at the time and loaned them the money.

They later divorced and I remained friends with the wife as we were schoolmates during grammar and high school.   No attempt was made to pay back the loan.  I mentally wrote it off.  I remained friends with the wife.

In 2006, I flew up to Massachusetts for my dad's funeral.  My friend now lived in metro Boston.  She called me and said she was going to drive to western Massachusetts and spend the day with me.  My dad's visitation was that evening.

My friend and I went out to lunch and she said it was her treat.  After lunch, she pushed an envelope across the table and said open it.  I did and inside was the money paid back in full she borrowed back in 1976.

I told her I had forgotten all about the loan (which I had by then).  She replied that I might have forgotten about it but she never had.

I was surprised and pleased as punch. Not a lot of money loaned but it was nice to get it back after 30 years.

[NoNamePerson]

I loaned a friend money once. Not a large amount. A slip of the tongue made me realize that she borrowed from me to lend it to someone else. I did get paid back after a while. Admit though that it left a funny feeling about the whole scenario. But to answer the question I don't borrow from anyone personally and would only loan to my son if need be.  

[grumpyhermit]

I borrowed money from my grandmother when I was in college to buy a car. I had an accident, and couldn't afford to replace it at the time. I paid back every cent. 

Funnily enough, my mother ALSO borrowed money from my grandmother (her mother) at the same time and I paid back the amount I borrowed first. Something my grandmother took great joy in reminding my mother. 

I would probably not borrow money from a family member today. I know I would prioritize paying it back, but I just prefer to avoid owing family anything. That said, I would lend, or even give, money to family if needed (depending on the amount of course). 

[raeoflyte]

My parents hold the "note" on a property we jointly own together. They were able to pay it off and wanted to reduce their debt, but I still owe them for my portion of the original loan. The rental income more than covers the payments so I rarely even think about it.

[finnime]

Myself, I don't see anything that would be a warning against this in your situation. Your DS earns a good income and can afford the loan; you would save some money while repaying your DS with terms as generous as a commercial bank. Win-win.

[toomuchreality]

My son in law has paid for my car to be repaired ($1,500.00) and for tires for my car ($420.00). Both times, I told him when I could pay him back (in 2 weeks for the $1500 and the same day paid, for the $400). He said I didn't have to, but I insisted and did.
Both he and DD2 have told me, I am the ONLY one who has ever paid them back, including members of his family. And I am the only one he will even consider loaning money to, including his family. It's important to me.

I've had people borrow small amounts from me, that were never paid back. Eventually, we quit speaking, because I felt used and I would no longer "loan/give" them what they wanted.

I think you'll be fine.

[msventoux]

I loaned my parents money. It wasn’t always paid back. The last time it was to tide them over until they received a settlement by a specific date. I told them I would lend them the money but needed it paid back with the settlement as I needed the money for tuition. They got the settlement. They spent it on new furniture. Not on paying me back or getting caught up on past due bills. That was the last time I loaned money. 

I think it would be fine in your case. You’re not desperate for the money. You wouldn’t default on your obligation. It’s a nice thing your DS wants to do that will benefit you both. 

[toomuchreality]

Mar 1, 2023 1:35:27 GMT -5 msventoux said:

I loaned my parents money. It wasn’t always paid back. The last time it was to tide them over until they received a settlement by a specific date. I told them I would lend them the money but needed it paid back with the settlement as I needed the money for tuition. They got the settlement. They spent it on new furniture. Not on paying me back or getting caught up on past due bills. That was the last time I loaned money. 

I think it would be fine in your case. You’re not desperate for the money. You wouldn’t default on your obligation. It’s a nice thing your DS wants to do that will benefit you both. 

That's the kind of thing that would really upset me. Trust is a big deal to me.

[nidena]

Sounds like DS trusts that you will pay it back and you KNOW you will pay it back as fast as you're able so I don't see an issue with the situation.

I think it would be different if you were asking and they were reluctant but that doesn't appear to be the case.

[steph08]

I think borrowing from your DS in this situation would be fine, especially if you have a contract and make a note that if something happened to both of you, he gets that additional money on top of anything else.

I have loaned my parents money before to pay off CCs with high interest rates. It was about $10k and it was paid back. My parents are in a better financial position now so haven't loaned them money in probably 10 years.

[haapai]

I've never borrowed money from a family member. 

Maybe this conundrum would be easier to solve if you flipped it on its head.  Instead of focusing on the familial angle, start with the terms of the loans in question. 

The interest rate that you have mentioned (2.9%) is absurdly low.  That sounds more like what the bank would pay you in interest for a savings vehicle than the interest that they would charge you on a loan.  A quick check of the rates that my credit union is offering shows that they are offering 10 to 30 year mortgages with rates as low as 6% to 6.375%, home equity loans as low as 7.75% and home improvement and personal loans as low as 9.99%.  The repayment periods on those non-mortgage loans can be very short too, so the payments could be quite high. 

I really don't know why your child is offering you a loan with such a low interest rate or how quickly he expects to be paid back.  If he's saving for a down payment for a home, he may want to be paid back pretty quickly. 

[haapai]

On second thought, it seems far more likely that your child wants to make sure that you don't default if one of you retires or dies. 

Having the new windows installed and the house repainted also makes it much easier to sell should that be necessary. 

These are pretty good reasons to offer parents a loan with much more generous terms than a bank would. 

[wvugurl26]

Debt isn't in the US so her interest rates will be different.

Since he offered I see no issue with it. I would have it formally written up.

[debthaven]

Thanks everyone! I appreciate your input. 

We will accept DS2's kind offer. And we will definitely have it formally written up. 

ETA: To respond to Cassandra's haapai  's comments: 
- As WVU said, I don't live in the US, I live in France. 
- Those are indeed the interest rates here, to borrow money. The bank is offering us 2.9% for (essential, energy-saving) renovations. 
- If DS2 were saving for a down payment, we would NEVER borrow from him. He's not. He owns his apartment (but he's looking for a bigger one). Plus, my common sense tells me that if DS2 WAS saving for a down payment, he wouldn't be so eager to lend us money. 
- If DS2 was worried about us defaulting, common sense tells me he'd prefer the bank take the risk rather than him. Why on earth would DS2 offer to lend us money if he thought we might default on the loan?! That makes absolutely ZERO sense to me. If we're a risk, the obvious choice would be to let the bank take the risk rather than taking it on himself. 
- The bank is offering us a 5-year loan. DS2 has told us that he'd prefer we pay him back in 4 years. That's EMINENTLY doable, especially since we won't also be paying for insurance. We've told him we'll pay him back in 3 years (but my secret goal is to pay him back in 2). 
- You mentioned the risk of us retiring or dying. Dying is out of my control. I am already retired, at 63. DH (66) will retire in May.

I am actually earning MORE than I ever have, because I get my retirement income, PLUS I'm working a big PT. DH will do the same. So we actually have MORE disposable income than we've ever had before. (We are both well aware that that won't last forever).

- You are correct in that the windows and outside paint job will increase the value of the house, which is left to our kids in our wills. 

If DH and I both die at the same time, all bets are off. But that clause about DS2 being reimbursed first will be included in the formal agreement we plan to draw up. 

Have I forgotten anything?!

I'm sorry to call you out like this haapai . I don't know if it's just me, but it seems like you ONLY ever show up to point out the WORST-case scenario in ANY situation, without even knowing the poster or context or background. 

[haapai]

My answer was highly geographically biased.

It would probably be much more appropriate to imply that I am a Debbie Downer or just call me an alarmist than compare me to Cassandra.  I don't have Cassandra's gift of seeing into the future. 

ETA:  I may frequently speak vague, dark, incomprehensible gibberish, but I am definitely not gifted with prophecy.   Why would you ever use that analogy? 

[debthaven]

I may frequently speak vague, dark, incomprehensible gibberish, but I am definitely not gifted with prophecy.

You certainly do. Many of your comments to me had very little to do with geography though (apart from the interest rates). 

I called you Cassandra because you seem to have "seen" many imaginary scenarios that don't exist, and that don't even make sense. If you prefer "Debbie Downer" to "Cassandra", that's fine with me. You can call yourself anything you want.

I wish you well, but I would prefer not to engage with you any further. 

[Pink Cashmere]

I can’t imagine borrowing money from my children, but that’s because I can’t imagine them having that kind of money to loan me lol. My children know I’m funny about money, and I don’t play with other people’s money, so they do trust me. I’ve actually held money for DD before because she felt like it was safer in my hands than her having easy access to it, and probably nickel and dimming it away. I put it in a sub account on one of my savings account, to keep it totally separate from my money. She didn’t keep up with how much I’d give her when she asked for some, so she’d know how much she had left. One day we were together and she needed some money for something and was fretting about it because she thought she only had a couple hundred dollars left and wanted to hold in to it as long as possible. I pulled up the account on my phone and showed her how much she had left, $1700. 

None of that answers your OP though. I don’t borrow money from family, or anybody, because my Mom has burned so many people so many times, I never want people to think that I’m like her because I’m her daughter. I stopped loaning money when my first cousin owed me over $2k, and I had to act real ugly to get my money back. My money had got real funny, and I needed her to lay me back like she said she would, and she wasn’t, so I started being really mean to her. She finally paid me back after she realized I wasn’t playing, and I still acted funny with her for a few years after, because I was angry it came to that. It’s a long story, but that’s the gist of it.

So after that, I followed the rule to only “loan” what I could afford to give away. Which isn’t much lol. I will gift money, but I don’t loan it anymore. 

I think it’s great your son wants to loan you and DH the money instead of you using a bank. I’m sure he’s so insistent because he wants to do you a favor and can afford to, it will save you some money overall, on the insurance you mention (which I don’t understand, is that something specific to where you live?) and because he knows he doesn’t have to worry about you doing what you say he will, as far as paying him back as promised. It’s also great that you all talked about the details, so there are no misunderstandings.

I don’t see anything wrong with it since you say he can afford it, and I’m sure you’ll pay him back as agreed. Good deal!

[jerseygirl]

We took a mortgage on DD and SIL first house . The mortgage lender they had been using in Florida pulled out just before their closing. We had an attorney cousin write the mortgage and they paid monthly promptly. When the were buying another home we bought the first from them and rented it out. SIL acted as manager and had no problems for 5 years when we sold it
Other than that no family or friend loans. We only gift

[TheOtherMe]

My parents had to co-sign when I bought my first home.  I had forgotten all about that until I ran across the paperwork.  I never missed a payment so no money ever came from them.

I didn't even have a credit card at the time and didn't even know there was a credit score.

[dippyegg]

I have never borrowed from anyone personally.  One time my BIL and his family were having some financial problems.  We decided to just gift them some money.  And this was shortly before the holidays.  They then showed up at our house at Christmas with a ton of gifts for our kids.  Kind of seemed odd to us that they are having money problems to the point of us giving them money but then to buy a bunch of frivolous stuff.    Just seemed strange like why are you spending money on this?  We didn't say anything but somtimes I think people who are not good with money, there is often a reason why.

[debthaven]

I finally got the info from our credit union that I was waiting for, ie how much is interest, and how much is insurance on the loan. Turns out 70% of the 1800 euros our loan from the CU would cost us over 5 years is for insurance!!! Only 30% is for interest.

So we ARE accepting DS2's kind offer, and we will file the pertinent paperwork. 

We can pay for the windows, so we'll only borrow from DS for the outside work in May or maybe June. 

DH agrees on minimizing the loan, and paying it off ASAP (ideally within 2 years). 

Thanks again for all your help and advice! 

[finnime]

That sounds very wise, debthaven. You won't regret it.

[cronewitch]

I have borrowed from parents and loaned to friends and family with never an issue. The closest to an issue was borrowing from my dad. He seemed to think owing him money meant he should be able to tell you how to live. I asked him for $7.7K to pay off my ex to get him out of my life and he said yes. Then he told my brother that I wouldn't have had the money before the balloon payment anyhow, I was bad with money. My brother told him I had loaned him money. I was not bad with money but dad assumed I was. My brother borrowed from dad before he borrowed from me. Dad invited him to borrow because work was spotty and if he owned dad for a motorcycle loan he could skip payments when unemployed. He skipped payments when unemployed then spent money on his daughter's birthday. Dad was upset he couldn't afford to pay him but could afford to spend on his daughter. When he had money to repay loans he asked if he could pay dad first. Later he paid me with interest. I paid dad soon after the loan and never borrowed again. He sold me a truck for $2.5K and said any amount I wanted a month and no interest so I said I would pay $1 a month; he said no. I paid it off in a couple months. 
I don't understand why you save money on insurance but if it is good for you and your son I don't see an issue. I would repay it early since I hate being in debt and even more to family.

[azucena]

Mar 7, 2023 10:14:44 GMT -5 cronewitch said:

I have borrowed from parents and loaned to friends and family with never an issue. The closest to an issue was borrowing from my dad. He seemed to think owing him money meant he should be able to tell you how to live. I asked him for $7.7K to pay off my ex to get him out of my life and he said yes. Then he told my brother that I wouldn't have had the money before the balloon payment anyhow, I was bad with money. My brother told him I had loaned him money. I was not bad with money but dad assumed I was. My brother borrowed from dad before he borrowed from me. Dad invited him to borrow because work was spotty and if he owned dad for a motorcycle loan he could skip payments when unemployed. He skipped payments when unemployed then spent money on his daughter's birthday. Dad was upset he couldn't afford to pay him but could afford to spend on his daughter. When he had money to repay loans he asked if he could pay dad first. Later he paid me with interest. I paid dad soon after the loan and never borrowed again. He sold me a truck for $2.5K and said any amount I wanted a month and no interest so I said I would pay $1 a month; he said no. I paid it off in a couple months. 
I don't understand why you save money on insurance but if it is good for you and your son I don't see an issue. I would repay it early since I hate being in debt and even more to family.

Crone - nice to see you around again. Hope life is treating you well

[cronewitch]

Mar 7, 2023 10:41:41 GMT -5 azucena said:

Mar 7, 2023 10:14:44 GMT -5 cronewitch said:

I have borrowed from parents and loaned to friends and family with never an issue. The closest to an issue was borrowing from my dad. He seemed to think owing him money meant he should be able to tell you how to live. I asked him for $7.7K to pay off my ex to get him out of my life and he said yes. Then he told my brother that I was bad with money. My brother told him I had loaned him money. I wouldn't have had the money before the balloon payment anyhow, I was not bad with money but dad assumed I was. My brother borrowed from dad before he borrowed from me. Dad invited him to borrow because work was spotty and if he owned dad for a motorcycle loan he could skip payments when unemployed. He skipped payments when unemployed then spent money on his daughter's birthday. Dad was upset he couldn't afford to pay him but could afford to spend on his daughter. When he had money to repay loans he asked if he could pay dad first. Later he paid me with interest. I paid dad soon after the loan and never borrowed again. He sold me a truck for $2.5K and said any amount I wanted a month and no interest so I said I would pay $1 a month; he said no. I paid it off in a couple months. I don't understand why you save money on insurance but if it is good for you and your son I don't see an issue. I would repay it early since I hate being in debt and even more to family.

Crone - nice to see you around again. Hope life is treating you well

Life is treating me fine, playing games and getting lots of rest. Pretty bored since my ISO died. Almost 2 years ago now, nobody to play with now.

[debthaven]

I'm so sorry about your ISO cronewitch . 

[toomuchreality]

Mar 7, 2023 11:25:24 GMT -5 cronewitch said:

Mar 7, 2023 10:41:41 GMT -5 azucena said:

Crone - nice to see you around again. Hope life is treating you well

Life is treating me fine, playing games and getting lots of rest. Pretty bored since my ISO died. Almost 2 years ago now, nobody to play with now.

I'm also happy to see you. And I'm sorry for your loss.

It's funny, I actually think of you pretty often. I play a word game online and periodically one of words is CRONE. Every time, I think of you.