Family loan repayment help please

vintagebrighton

I borrowed 10,000 from a family member a while ago. Initially I just paid the interest which was 60pcm so obviously nothing off the capital.

Then when I got back on my feet I started paying 140pcm. 60 for the interest and 80 from the capital. The plan is to do this for 5 years and then pay a lump sum of 5000 thereby clearing the debt.

I don't know how to work out if this is fair and will pay everything. I can work out that 80pm over 60 months is 4800 so the extra 200 would maybe account for the decrease in interest owed? Does anyone know how to work this out properly?

Thanks

Tixy

What interest rate did you agree to pay the family member? Was it agreed as a monthly interest rate if 0.6%? or was it agreed as an APR or what?

If it was 0.6% per month then after 60months of repaying £140 you would owe a lump sum of around £4243.

vintagebrighton

I didn't agree a percentage rate. They took out a loan of 20k with the interest fixed at 120pcm so I pay my half and they pay theirs. Does that help?

Tixy

You would need to know the details of the loan they took out.

Unless they took out an interest only loan then it wouldn't have been £120 interest every month (interest is always more proportionately at month at the start of the agreement and reducing as the capital is paid off).
You really need to know the APR they borrowed at to calculate your how much you need to pay them overall.

vintagebrighton

Thanks so far...

I've now spoken to them and they took out a 20k interest only loan secured on their property (I really didn't know this!). The interest rate was fixed at 5.79% with the capital to be repaid when the property's sold.

Sounds like there's no intention to repay any capital until the sale of the house but I still want to stick to my original plan if this would pay everything I owe.

So, would the original plan be ok to pay everything?

Thanks

HappyMJ

vintagebrighton wrote: »

Thanks so far...

I've now spoken to them and they took out a 20k interest only loan secured on their property (I really didn't know this!). The interest rate was fixed at 5.79% with the capital to be repaid when the property's sold.

Sounds like there's no intention to repay any capital until the sale of the house but I still want to stick to my original plan if this would pay everything I owe.

So, would the original plan be ok to pay everything?

Thanks

I'd save the money up in a savings account continuing to pay the £60 a month then once you've saved the lot up then give them a cheque for £10,000 finalizing the loan. What they then choose to do with it is up to them.

Tixy

The interest on £20k at 5.79% would not have been £120 a month, it would be just under £100.

So if the intention was to charge you the same APR then strictly you had already started paying some of the capital off the amount you borrowed from your relative when you were paying the £60 a month.

Even if you ignore that overpayment and say that you still owed £10k at the point you started to repay then £10k at 5.79 APR repaid at £140 a month for 60 months would actually only leave a lump sum of would mean that after £3572 to be paid.

This supposes that they did always intend to only charge you the same amount as they were paying themselves.

As HappyMJ says it would probably be 'easier/tidier' to have just paid the interest and paid the capital in a lump sum.
This type of arrangement does tend to get very complicated, especially as they may well not have been saving the capital element you paid them, or paying it off the loan as an overpayment.

vintagebrighton

HappyMJ wrote: »

I'd save the money up in a savings account continuing to pay the £60 a month then once you've saved the lot up then give them a cheque for £10,000 finalizing the loan. What they then choose to do with it is up to them.

This was my preferred option but they wanted extra money now.

Anyway, thanks for your help guys. Think as they were good enough to help me out when I needed it I'll just forget the odd discrepancy in their calculations/payments and stick to the original plan. It's better to pay a bit too much than leave them short.

Prothet_of_Doom

This would be so easy to work out if you used excel and about 4 or 5 rows.

Do you want to PM your email address and I'll send you a spreadsheet with a simple explanation.