Money Moral Dilemma: Should I pay my parents interest?

Augustus_the_Strong

Ask your parents to set out (in writing) exactly what they have lent you, and what they would like you to pay back (including interest), and why they think you should pay it all back.
Then pay it. You can afford to do so in the long run as you have the house which is going up in value.
Avoid falling out with them if at all possible. It's important not to fall out with family members.

Mojisola

oliveoil54 wrote: »

Don't normally post on these, but am in same situation. As the Parents we have gifted a large sum each plus loaned both our children considerable sums on the understanding they pay it back slowly.

we could't afford to gift this amount as it would leave us seriously short later on.

We have no written agreement it is done completely on trust

While this has worked well for you so far, it's best to have it all written down.

Plan for possible changes to life - deaths (parents and children), illness, need to claim means tested benefits, etc.

Having everything in writing with all concerned knowing what's expected of them will make things much easier if one of the 'disaster' scenarios happens.

Domayne

No. They are your parents, Firstly charging you interest in the first place is just disgusting - Like you are some client, not their flesh and blood!!!!
Secondly, If they wanted interest that should have been discussed before you took the loan from them, Not when you have made the final installment!! Tell them to jog on.

MarkyMark10

Personally I think this is pretty astonishing behaviour.

Can you initiate divorce proceedings?

As you say it was "some years ago" I'd imagine you've paid back several pounds already. You don't mention but are your parents PT loan sharks or did they use to work for Wonga?

I'd pay them back the balance of the £7,000 and that's all.

Their behaviour should not be rewarded with financial gain.

onlyroz

oliveoil54 wrote: »

Be careful regarding this, to enable both our children to get lower mortgage agreements we had gifted some of the deposit & as we couldn't afford to gift the rest we loaned it to them; on the understanding that they repay slowly as and when they could afford it, allowing for holiday repayments for redundancy or childbirth etc.

However their Mortgage Companies & Solicitors both insisted we signed documents saying that we had no claim on the money given as the Mortgage Companies would not lend to first time buyers who didn't provide/own all the money for their deposits!

So your children committed fraud then, by making a false declaration on the mortgage application?

TBagpuss

I find it quite strange that so many people feel it is wrong for parents to charge interest to their (adulrt) children but just fine for children to take advatage of their paretns by expecting interest free loans.

Like so many things, it depends on the circumstnaces of all thoe involved. Many parents may be able to aford to lend only if they get some return, it's not mean or greedy.

In this instnace, it sounds as though no one discussed or agreed on their expectatipns.

What I would do is calmly speak to my parents, explain that I was a bit surprised as I had been under te impression that they were loaning the money interest free, but confirm that I was happy to discuss it and ask them to set out what they think the figures are.

I would also be working out what the *actual* interest rate would be if I paid as they were proposing - if it is similar to, or lower than, what they would have got back by investing the money is a good ISA then I'd pay it. If it was a lot higher then I would put that to them and suggest a diferent figure.

i would also be consiering how the sum invovled related to the value of the house, both when I bought it, and now, and use that percentage value as a cross-check as to what it was fiar to pay back, and I would also be thinking about my parents situation and whether the request was coming from a situation where they feel that they need the money.

Frome a strict legal perspective, I do not think that they would be entitled to interest if there was not written agreement including it in the first place, but unless family relationships have totally and permanently broken down already, i would not be making decisions based on the strict legal position.

Pollycat

MarkyMark10 wrote: »

Personally I think this is pretty astonishing behaviour.

Can you initiate divorce proceedings?

As you say it was "some years ago" I'd imagine you've paid back several pounds already. You don't mention but are your parents PT loan sharks or did they use to work for Wonga?

I'd pay them back the balance of the £7,000 and that's all.

Their behaviour should not be rewarded with financial gain.

Behaviour?
What behaviour?

Oh - you mean their generosity in lending their child the money in the first place.....

You talk about financial gain, what about financial loss?

oliveoil54

Mojisola wrote: »

While this has worked well for you so far, it's best to have it all written down.

Plan for possible changes to life - deaths (parents and children), illness, need to claim means tested benefits, etc.

Having everything in writing with all concerned knowing what's expected of them will make things much easier if one of the 'disaster' scenarios happens.

As I explained in my previous post they would not have got their mortgages if we had chosen to put it all down legally.

oliveoil54

onlyroz wrote: »

So your children committed fraud then, by making a false declaration on the mortgage application?

Technically I suppose you are correct, that is why we chose for it to remain as a 'family agreement'!

Therefore I am very surprised that all these people in previous posts who have borrowed money from their parents and written it all down legally, have actually managed to get mortgages then? Especially if like mine they didn't have a huge amount of history for credit reference checks!

PosterBoy77

I'm quite amazed just how many people have so little disregard for someone else's money and their apparent entitlement to it. If either your parents or any other friends or family members for that matter are prepared to lend you some money, I don't see anything unreasonable at all about paying interest, nor in them asking for some. All money devalues and is subject to inflation over time. Paying interest at up to the rate of inflation involves no profit at all. A reasonable amount on top is something to show your appreciation. If you don't like that, go to a bank.

I do not see why it is somehow nasty for interest to be charged, but fine to get the benefit of someone's money whilst it looses value if loaned without interest.

I think it is very mean of people to expect to borrow money interest free, they are the "skinflints", not those lending it. Borrowing money from a family member is already a big favour as they will be doing it on trust that it will be returned as promised.

Last of all, I don't see that just a minimal rate such as 1% is the only reasonable rate either. It depends upon circumstances. If someone lends money they they could locked away in a fixed rate bond, then they will be loosing the interest they could have had there, plus in a case like this, extra hassle. If someone has money that they use as cashflow for their own business, it may be worth more than that to them, as they may normally make a bigger return with their cash, but in essence, whatever they could normally get plus something as a thank-you is what I would call reasonable. However, this should all be discussed up-front to avoid any confusion or bad feelings later.