Moral dilemma: loan for family member settlement

withaspritz

Hi all

About two years ago I took out a four year loan at a low APR on behalf of a family Member to get them out of a tight spot. I did this off my own back, I wasn’t asked, and I am able to afford to pay the payments even if the family member did not pay me so there was no “danger” beyond being out of pocket - a risk I was and am willing to take! 

As it happens though the family member has dutifully paid me back my monthly payments each month and continues to do so without being asked / reminded. All good. 

Now I’ve come into some money via an inheritance that could settle the loan and save some interest. The loan is in my name and the proceeds were used by the family
member to buy a car which is in their name etc. As rates are still low, it makes sense to me to pay off the loan early and save interest being paid to the lender as I already have a cash buffer for emergencies.

Obviously, if I paid off the loan, the family member would continue to pay me monthly until their debt to me is settled. 

If I use the cash to settle the loan (about £8k settlement figure, saving £400 ish in interest) do I pass that saving on to the family member? And if so should it be in the form of shortening their “term remaining” to derisk me?

or should I keep the saving to myself, and continue as planned/agreed with the family
member, since it is my inheritance lump sum that’s saving the interest?

what’s the moral thing to do? 

withaspritz

Btw the inheritance is on the other side of my family to the loan, so the borrowing family member is not getting their own (related) inheritance money!

MalMonroe

For me this has nothing whatsoever to do with morals. It's a family member. Help them in whatever is the most generous way possible. You shouldn't really have to ask strangers on a money saving forum. 

If it were me, I'd gift my family member with a generous portion of my inheritance, i.e. pay off a chunk, maybe all of the loan for them. Why not? You'll lose nothing. You say you are 'quite well off'. But really if you were that well off, couldn't you have just loaned the family member some money without faffing about with a loan in the first place?

Sorry if this comes across as judgemental but the way your post is worded is a tad superior. Share your wealth! Why not? That's my vote.

Brie

There's something to be said for someone paying their own way.  And they might insist on doing this.  

Maybe split the difference with them?  Or return/refuse their last payment?  "oh no, that was all paid off last month!  so thanks but no thanks!!!"

withaspritz

MalMonroe said:

For me this has nothing whatsoever to do with morals. It's a family member. Help them in whatever is the most generous way possible. You shouldn't really have to ask strangers on a money saving forum. 

If it were me, I'd gift my family member with a generous portion of my inheritance, i.e. pay off a chunk, maybe all of the loan for them. Why not? You'll lose nothing. You say you are 'quite well off'. But really if you were that well off, couldn't you have just loaned the family member some money without faffing about with a loan in the first place?

Sorry if this comes across as judgemental but the way your post is worded is a tad superior. Share your wealth! Why not? That's my vote.

Thanks for this perspective, re-reading it does come across that way. Wasn’t intended to though!  The well off bit was meant to indicate that there was no risk in me defaulting on the loan payments if the family member stopped paying me, ie I didn’t get myself into a dangerous situation. 

Also when you say I’ve got nothing to lose, I guess - besides the inheritance which I would essentially be gifting away

withaspritz

Brie said:

There's something to be said for someone paying their own way.  And they might insist on doing this.  

Maybe split the difference with them?  Or return/refuse their last payment?  "oh no, that was all paid off last month!  so thanks but no thanks!!!"

They definitely would keep paying me even if I said I’d settled it with the lender.  Shortening the term is my current thinking too

Mojisola

withaspritz said:

If I use the cash to settle the loan (about £8k settlement figure, saving £400 ish in interest) do I pass that saving on to the family member?

And if so should it be in the form of shortening their “term remaining” to derisk me?

I would share the good fortune by paying off the loan now, sharing the gain 50/50 and giving the relative the chance to reduce the monthly payments or shorten the term.

Voyager2002

I think that all the options you listed are moral. Note, however, that unless you are a licensed money-lender you break the law by charging anyone interest. Given that this family member had problems with money management in the past, there is something to be said for continuing to take the payments and then surprising her/him with a lump sum that you had helped them to save up.

DTucker1983

Reduce monthly payments passing saving on to family member

withaspritz

Voyager2002 said:

I think that all the options you listed are moral. Note, however, that unless you are a licensed money-lender you break the law by charging anyone interest. Given that this family member had problems with money management in the past, there is something to be said for continuing to take the payments and then surprising her/him with a lump sum that you had helped them to save up.

Fair point, I wouldn't be charging them interest if I passed the saving on to them though! Currently, they pay me the amount I pay the lender!  My favourite option is settle and pass the saving on via shortened term, such that they pay me back earlier / sooner. I still keep my inheritance, in two years I will have it back, and the loss of interest would be minimal over those two years vs keeping it in a savings account.

ObserverOfLife

Or there is the 4th option: 

Keep the same term, repayment amount and in the end, give back the difference as a gift and request they use it as a rainy day fund/buffer/emergency pot. It's pretty much what Voyager2002 was saying.

If they have money management issues, then can you trust them to use the 'savings' or spare cash wisely? A friend of mine's father charged him £150 rent per month for living at home when he started his first job because as a young man, money management isn't always great. Little did he know that his father was actually saving the money up for him for when he bought his first home, he gave all of the money to him to go towards the new place. 

Hope it all works out for you!