Lend to my son

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SunnySeagull
SunnySeagull Posts: 3 Newbie
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in Loans
Hello - I'm new to the forum, so apologies if I seem a little green.


I have recently inherited some money which I intend to draw down on during my retirement. I don't need the majority of the money for at least 5 years so one of the options I am considering is helping out my son who has a number of loans/credit cards.


If I were to lend him £30k @ 3% per annum, this is already better than what is available in a 5 year fix savings account. However, in addition I would earn interest on the monthly repayment amounts of £580.


This enables me to gain improved returns and my son to decrease significantly the level of interest for which he is liable.


It all seems a little to easy, is someone out there able to point out any potential floors beyond the risk that my son doesn't pay?
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  • System
    System Posts: 178,093 Community Admin
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    Nope, think you've got it covered except your maths is out for a £30k loan over 5 years at 3%. You basically have to accept that you're giving him the money with little to no chance of being paid back. I would do this in the expectation that he'll clear the debts and rack up more again especially on the cards. I will make this point though: Consolidation loans rarely ever work and usually the people who get them end up digging themselves bigger holes, something to consider if you're trying to help him.

    I would still draft up a legally enforceable agreement between you. In this agreement you name both parties, you state the loan amount, the rate of interest, the number of payments, the length of the term, the total amount of interest that will be payable and the end date of the term.

    So for your example:

    Loan amount £30,000
    Interest rate: 3% per annum
    Term: 60 months.
    Repayment schedule: 60 monthly repayments of £538.52 to be paid on the 1st of every month. 1st repayment 1st May 2018, final repayment 1st April 2023.
    Total Interest Due: £2311.28
    Total Repayable: £32,311.28

    Date it, sign it, get it witnessed.
  • DigForVictory
    DigForVictory Posts: 11,906 Forumite
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    Forgive me for saying this but the flaw is already clear in that your son has multiple debts.
    His flaw.
    If he is paying them back steadily, rebuilding his credit rating, excellent & he'll become eligible for other better deals time future.

    Your loan from intended future retirement funds could be a shortcut forward, but only if he's already learned robust self discipline.

    Which isn't a risk I'd be too willing to take, given how casual he seems to be about having plural debts already.

    Of course loving parents want to help their children, but sometimes the lesson is to make them figure it out on their own. Here on most MSE fora, the default advice is just do not lend to family. Or sign as guarantor. Or anything like that. As it ends up going wrong more often than not, and we'd rather not cheer you towards distress.

    Others will be along with their opinions, but as far as I can see the major flaw is that you want to lend money to someone who has already borrowed from most of the available sources. Possibly for valid reasons, but the money you hold is for your future, not his.
  • PeacefulWaters
    PeacefulWaters Posts: 8,495 Forumite
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    Assume you won't get it back and it might damage your relationship.

    What has your son done to stop spending £30,000 more than he's earned? If you're not aware of anything positive, taking on his debts is asking for trouble.

    I bailed out my step son with £2,000. Within three months the debt had been repaid and reborrowed at a higher rate. I effectively made him worse off. You're playing a similar game on a much bigger scale.
  • molerat
    molerat Posts: 31,855 Forumite
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    Lending to buy something instead of getting a high street loan is one thing but lending to pay off a debt is a completely different high risk option with a fair chance of it failing and him getting even deeper into the doodoo. He has, for whatever reason, proved that he cannot manage his financial affairs satisfactorily and with no fear of the legal heavies paying him a visit history is likely to repeat itself. One of my wife's distant relatives did the same many years ago and ended up having to sell their house because after already losing their retirement funds they had to bail the son out again.
  • NineDeuce
    NineDeuce Posts: 997 Forumite
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    Why do people apologise for being new to the forum?
  • SunnySeagull
    SunnySeagull Posts: 3 Newbie
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    Thank you very much guys - there appears to be a bit of a theme developing here!


    In fairness to him his financial problems began following a rather messy divorce, I have considered the likelihood of him defaulting on the repayments and if I'm honest do consider it low - he has never missed a payment yet, he's just paying such a lot in interest/charges. This idea was really born out of being able to help him, while at the same time helping me.


    If we assume that he will not default, are there any other possible pitfalls.


    Also Tarambor, with regard to the interest - although I have said 3%, I am actually referring to a slightly higher rate as I am working on myself being able to get 3% if I kept it in a savings account which would equate to £34778.22 over 5 years, which divided by 60 is £580 - my mistake for not being clearer
  • Wizardly18
    Wizardly18 Posts: 4 Newbie
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    One and only piece of advice, do not lend money to your son.

    Do not lend money in fact to any family member, it will end it tears.
    They could find they can't pay you back, you'll be left without any of the money and it'll ruin the relationship between you.

    Many have made the mistake before, and many more will.

    Money is, the route of evil
  • PeacefulWaters
    PeacefulWaters Posts: 8,495 Forumite
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    Interest charged should be disclosed to HMRC.

    I'd suggest, if you really want to do this, starting small. Lend him the money for the most expensive debt. Shorten the repayment period to match the existing monthly payment. Ask him for a copy of his credit file first to ensure you know the extent of his liabilities.

    This will mean he's no better off today, but will be better off in time thanks to benefitting from the shorter term from the lower rate.

    I'd also ask him for a copy of his credit file before "renewing" the loan for other agreements to ensure he hasn't built up any new debts.
  • dealer_wins
    dealer_wins Posts: 7,334 Forumite
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    Like others have said OP gift the money to your son (Or think of it as a gift even if you tell him its a loan)

    Its very likely you wont get much of it back, and because it was a gift you wont mind then.
  • John-K_3
    John-K_3 Posts: 681 Forumite
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    If he fails to pay, you will resent this, and it will sour your relationship.

    If he keeps paying, for years, he will come to resent the fact that he is going without things he!!!8217;d like, to pay back his dad who is far better off than he is, and it will sour your relationship.
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