Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@. Skimlinks & other affiliated links are turned on

Search
  • FIRST POST
    • SunnySeagull
    • By SunnySeagull 11th Apr 18, 12:14 PM
    • 2Posts
    • 0Thanks
    SunnySeagull
    Lend to my son
    • #1
    • 11th Apr 18, 12:14 PM
    Lend to my son 11th Apr 18 at 12:14 PM
    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?
Page 1
    • Tarambor
    • By Tarambor 11th Apr 18, 12:38 PM
    • 3,967 Posts
    • 3,001 Thanks
    Tarambor
    • #2
    • 11th Apr 18, 12:38 PM
    • #2
    • 11th Apr 18, 12:38 PM
    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
    • By DigForVictory 11th Apr 18, 12:59 PM
    • 8,441 Posts
    • 26,621 Thanks
    DigForVictory
    • #3
    • 11th Apr 18, 12:59 PM
    • #3
    • 11th Apr 18, 12:59 PM
    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
    • By PeacefulWaters 11th Apr 18, 1:25 PM
    • 8,318 Posts
    • 10,672 Thanks
    PeacefulWaters
    • #4
    • 11th Apr 18, 1:25 PM
    • #4
    • 11th Apr 18, 1:25 PM
    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
    • By molerat 11th Apr 18, 1:42 PM
    • 19,736 Posts
    • 13,957 Thanks
    molerat
    • #5
    • 11th Apr 18, 1:42 PM
    • #5
    • 11th Apr 18, 1:42 PM
    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.
    https://www.helpforheroes.org.uk/give-support/donate-now/
    • NineDeuce
    • By NineDeuce 11th Apr 18, 1:53 PM
    • 939 Posts
    • 857 Thanks
    NineDeuce
    • #6
    • 11th Apr 18, 1:53 PM
    • #6
    • 11th Apr 18, 1:53 PM
    Why do people apologise for being new to the forum?
    • SunnySeagull
    • By SunnySeagull 11th Apr 18, 1:56 PM
    • 2 Posts
    • 0 Thanks
    SunnySeagull
    • #7
    • 11th Apr 18, 1:56 PM
    • #7
    • 11th Apr 18, 1:56 PM
    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
    • By Wizardly18 11th Apr 18, 1:59 PM
    • 4 Posts
    • 2 Thanks
    Wizardly18
    • #8
    • 11th Apr 18, 1:59 PM
    • #8
    • 11th Apr 18, 1:59 PM
    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
    • By PeacefulWaters 11th Apr 18, 2:04 PM
    • 8,318 Posts
    • 10,672 Thanks
    PeacefulWaters
    • #9
    • 11th Apr 18, 2:04 PM
    • #9
    • 11th Apr 18, 2:04 PM
    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
    • By dealer wins 11th Apr 18, 4:01 PM
    • 6,136 Posts
    • 11,972 Thanks
    dealer wins
    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.
    Choose life
    • John-K
    • By John-K 11th Apr 18, 6:43 PM
    • 654 Posts
    • 1,024 Thanks
    John-K
    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.
    • Sncjw
    • By Sncjw 11th Apr 18, 6:56 PM
    • 1,969 Posts
    • 1,155 Thanks
    Sncjw
    What if something happens in the future and you don!!!8217;t have the money because of giving it to your son. Then if he doesn!!!8217;t pay each month you could struggle to pay for things. It!!!8217;s not just your son it will affect its you also.

    He should get on the debt free wannabe board if he really wants to pay these debts off.
    • venison
    • By venison 11th Apr 18, 8:00 PM
    • 2,612 Posts
    • 2,972 Thanks
    venison
    Family + Money = A recipe for disaster, harsh but true we have seen so many examples on here in the past, rarely though for as much as 30k.
    Looking forward to 2019 after a terrible 2018...onwards and upwards
    • Dobbibill
    • By Dobbibill 11th Apr 18, 8:53 PM
    • 3,420 Posts
    • 4,445 Thanks
    Dobbibill
    OP - Your heart will always want to help your son.

    There are plenty of posters all over these boards who thought their son/daughter/family member would definitely pay them back and it wouldn't change their relationship but it does.

    A consolidation loan, which is what this is, won't help.
    A SOA on the DFW board will or overpaying the lending he currently has to be rid sooner.

    Support him emotionally but enjoy your money and retirement.
    I'm a Board Guide on the Energy, Student Money Saving, UK Armed Forces and
    Local Money Saving - Wales boards. I'm a volunteer to help the boards run smoothly, and I can move and merge posts there.
    Board guides are not moderators and don't read every post. If you spot an abusive or illegal post then please report it to forumteam@moneysavingexpert.com. Any views are mine and not the official line of MoneySavingExpert.com.


    It's not about being the best -
    It's about being better than you were yesterday.
    • Tarambor
    • By Tarambor 11th Apr 18, 9:41 PM
    • 3,967 Posts
    • 3,001 Thanks
    Tarambor
    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,
    Originally posted by SunnySeagull
    The difference is he is paying companies where he knows that if he doesn't comply with the agreement they will pursue him for the money, will take him to court, will take action against him which could see him lose stuff he owns or have money taken out of his wages.

    Lending from parents falls over because they don't really expect you to take them to court for the money if they don't repay so there's no consequences for not keeping up to the agreement. Think of all the times over the years from when he was a kid he asked you if he could borrow some money and how many times he's paid you back. I would expect the answer, in line with most parents experience to be he asked a lot and never repaid it - as a parent you tend not to expect them to.

    And whilst now you may think that if they don't it won't be the end of the world it is different at the time because they will have broken your trust. What will make it even worse is whilst they're claiming they can't pay you you'll be sat there knowing that weekend they're going for a night out or that week they're on holiday with money they claim not to have or them turning up in a new car instead of repaying you. Nothing causes families to fall apart as much as money.
    Last edited by Tarambor; 11-04-2018 at 9:46 PM.
    • AnotherJoe
    • By AnotherJoe 11th Apr 18, 9:46 PM
    • 11,851 Posts
    • 13,826 Thanks
    AnotherJoe
    Pay off his largest % rate debt or two and tell him when he's paid you back those at your 3%, you'll pay the next largest ones off, and so on.

    That way you keep a certain element of control over most of the money it seems you will need later, he has an incentive to pay you back as quickly as possible*. If you pay the whole amount off at the start, you dont have that ability and he doesn't have that incentive.

    EDIT; And you might want to reconsider if you really want to charge him interest.


    * if he can pay you back even quicker and reduce how much interest, so much the better
    Last edited by AnotherJoe; 11-04-2018 at 10:32 PM.
    • Fireflyaway
    • By Fireflyaway 11th Apr 18, 10:11 PM
    • 2,101 Posts
    • 2,434 Thanks
    Fireflyaway
    If this were me, I'd either pay off my child's debt as a gift and not expect the money back of i wouldn't give them anything apart from emotional support. I know your deal is better than a bank loan but personally I'd feel uncomfortable about charging interest. That's profiting off your sons misfortune.
    I think loans to family and friends are also dangerous because it creates a debtor / creditor relationship. If your son lost his income and couldn't pay he would feel terrible. If he just stopped paying, you would feel terrible. I got in debt with the bank. Did I care? No. But your son and your relationship could change forever if this went wrong.
    Helping your son emotionally is better. Be there for a chat. Cook him dinner or go for a walk or coffee. Money can't buy that.
    My husband and his brother fell out over money and haven't spoken in 3 years. No loss for us but I feel sorry for their mum. Don't risk it.
    • redpete
    • By redpete 11th Apr 18, 11:55 PM
    • 4,300 Posts
    • 3,817 Thanks
    redpete
    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.
    Originally posted by Wizardly18
    and many have helped out family members like this, saved them the pain of fees and interest, helped them get on an even keel and got the money back. Or they have received agreed payment and at some point decided to wipe out the debt (treat it as a gift) without falling out.

    Money is, the route of evil
    or, more accurately, the love of money is the root of all evil (1 Timothy 6:10).
    loose does not rhyme with choose but lose does and is the word you meant to write.
    • Silver Queen
    • By Silver Queen 13th Apr 18, 2:35 PM
    • 508 Posts
    • 2,280 Thanks
    Silver Queen
    I think it ultimately boils down to your son's character, something that only you will really know. The risk, as everyone else has pointed out, is that he won't pay it back. But only you will have a good idea of whether he is likely to pay it back or no, and proceed with caution.

    For example, my parents lent me over 15k to pay for a postgrad qualification and I'm paying it back (albeit slowly). I do not intend to run away with the money and will be paying back every penny no matter what - but there are lots of horror stories on this forum of family members defaulting on family loans.
    Debt Totals December 2018::
    350 Natwest Credit Card / Now 0 (paid off and closed 04/2017) 15,500 postgrad loan from parents/ Now 8,500 500 train ticket loan from parents / Now 0 (paid off 16/02/18) 2,000 Overdraft Now 0 (paid off 09/03/18) 1,967.83 Barclays 0% card Now 1,967.83
    • iolanthe07
    • By iolanthe07 13th Apr 18, 3:06 PM
    • 5,107 Posts
    • 4,776 Thanks
    iolanthe07
    I helped both my children out by giving them each a large sum of money at Christmas, with no strings. I trust them to spend it wisely; wanting repayment might damage our relationship.
    I used to think that good grammar is important, but now I know that good wine is importanter.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

2,329Posts Today

6,970Users online

Martin's Twitter