Reducing 5% Interest from my Parents

Paul_1977

I would not make my own children pay back with interest. My god. I can't imagine doing that. Seems a bit cold.

Other non-direct family yes.

YorkshireBoy

Paul_1977 wrote: »

I would not make my own children pay back with interest. My god. I can't imagine doing that. Seems a bit cold.

When I borrowed money from my parents (twice) for cars years ago I insisted I paid them what I'd have paid the bank. After all, I was buying the car because I wanted/needed it, not because there was a chance of some cheap finance. Like a poster above said, if someone was making money out of me I'd rather it wasn't the bank!

When my parents loaned my son money for a car some years later (he'd saved £4K but was still £4K short) I again insisted they charge him interest (just what they were losing). They refused. I tried again, this time suggesting that they even if they did not want to they should at least charge it initially and then refund him once he'd made the final payment some two years later. They still refused.

I was trying to teach him some basic financial principles...unsuccessfully!...in that if you don't save up you have to pay more.


Paul...Just out of interest (if you'll pardon the pun!), would you/do you charge your children board? If you do (because there's a cost to you of providing it), then why don't you/won't you charge them interest on a loan? It's the same thing really isn't it?

Paul_1977

I would charge my children board because they are using what they pay for. I believe in paying your way in the world. But I would not even consider charging anything extra. It would be cost price.

Say I charged them £50 a week, and that paid for their share of bills, food, electric etc for that week, I would not say you must give me another £20 for the hassle. That is just not how I think.

Your children are your children, not some lodger. Life is too short for such things.

If I borrowed them 20k, they would pay back 20k, and that is it. Even if it takes them 20 years. I might even write it off if they were struggling.

If I have to give them a lift for work or something like that on a regular occasion, then I would hope they would give me something towards the petrol, but I would not want any profit for my time.

That is only for my children or grandchildren, no one else. Maybe its a middle class thing? I mean charging interest.

I don't think financial sense is something that can be taught, you can advise and hope for the best. I have seen the best parents, end up with children who have no common sense at all with money, and parents that end up losing their house and have very good children who live within their means. Perhaps you must feel the pain of debt before you know how to avoid it.

YorkshireBoy

Paul_1977 wrote: »

I would charge my children board because they are using what they pay for. I believe in paying your way in the world. But I would not even consider charging anything extra. It would be cost price.

The "cost price" of my dad loaning his grandson £4K was circa 2% AER.

But I somehow doubt the "cost price" of the OPs loan was 5% AER...sounds like a little profiteering there!

Herbalus

I wouldn't expect my parents to charge me interest for borrowing money, but I would pay it regardless. I don't think it's fair for them to lose out on interest they could've got elsewhere - why should they pay for helping me out?

But I think I agree with you Paul_1977, as I wouldn't charge any children I had interest unless there was a specific reason for doing so. If I were in a position to lend them money, it would be money I could afford to lose, and so the loss of 2% wouldn't mean a lot to me. But when I'm the person borrowing the money, I would make sure to repay them in full, including the cost of missed interest and inflation on their money.

2bak860

Good healthy conversation here.

@superhan - of course!
@eskbanker - yes, I plan to renegotiate
@violalass - this is their thinking too

What I will do is increase the payments and in return ask for some negotiation on the interest rate, so I can pay it back quicker.

Thanks for the replies - very helpful.

jennifernil

I would lend our children small sums interest free, say up to £5k, but would, indeed do, charge interest on a large sum.

I have taken on our daughter's BTL mortgage, all done legally with an agreement and a charge on the property. The interest rate is what the money was earning before I withdrew it to lend to her.

I declare the interest for tax purposes, and she can set it against her rental income.

It's a good deal all round......

She avoided expensive mortgage fees and has some flexibility over payments should she have a void period. She can overpay if she wants, the deal will never expire, and if she sells there will be no ERC to worry about.

I get a good rate of interest without having to move money around even more current accounts or be constantly looking for new accounts to give a decent return.

And no worries over having too much deposited with any one bank.

5% is rather high at the moment though.