Would you charge a family member interest?

[Anonymous]

Would I ask for interest? No. We loaned my FIL $30,000 and he insisted on paying some small amount of interest on it. The debate about not wanting him to pay it became tiresome, so I just said ok.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Yes, I would charge them the Fed funds rate. But I am an economist.

But that is practically nothing. You just don't want them to have imputed income?

That's not what imputed income means.

For a significant amount of money you should have them sign a note with some interest.

[Anonymous]

My grandmother charged interest on the money she loaned me for college.

[Anonymous]

Nope.

[Anonymous]

My father charged me market rate interest on the 100K he lent me for my first house. I also had to sign a promissory note. But it worked out great and I wasn't offended in the least.

[Anonymous]

I would not loan money. I would give money if there was a need and we could afford it.

[Anonymous]

Yes I loaned 20k to a family member at 1% interest. This person had a business that was struggling because of lack of investment. I knew him well enough to have reasonable confidence he would pay me back and this money was just sitting in my savings account.

While there is always a chance with anyone that you might lose the money, I got it entirely back, within agreed upon time frame and with the interest.

[Anonymous]

Why not both of you open accounts at prosper.com? You can bid on his loan then.

[Anonymous]

It depends what the loan was for. My husband and I bust our buts and are well off by US standards. But we also live very frugally and make trade-offs everymonth in order to put aside money for savings. In contrast - much of my family lives in the moment and has much nicer cars, upgrades to their homes, vacations but no savings.

If one of them was in a situation where they wanted a loan - there are definitely situations where I would charge them interest. I have loaned money before without interest and they took vacations before paying me back.

[Anonymous]

Yes. If I have outstanding loans, I charge the interest rate on that loan, as I could have used the money to pay off the loan, thus saving those interest costs. If it is coming out of savings, I'd charge the interest rate on that savings account.

I've found that friends and relatives who ask to often don't understand the sacrifice on our part, and charging them interest shows them that we are sacrificing something to give them the money, without taking advantage of them. By the way, I also ask for automatic deduction from their paycheck if I am concerned about getting the money back. Yes, I've been burned one too many times.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Yes, I would charge them the Fed funds rate. But I am an economist.

But that is practically nothing. You just don't want them to have imputed income?

That's not what imputed income means.

For a significant amount of money you should have them sign a note with some interest.

I think that is what imputed income means in this context. If you don't charge at least the applicable federal rate, then the IRS will consider the foregone interest as income to the borrower.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Yes, I would charge them the Fed funds rate. But I am an economist.

But that is practically nothing. You just don't want them to have imputed income?

That's not what imputed income means.

For a significant amount of money you should have them sign a note with some interest.

I think that is what imputed income means in this context. If you don't charge at least the applicable federal rate, then the IRS will consider the foregone interest as income to the borrower.

How would they ever know?

[Anonymous]

I financed my home through my father. I pay the then-current IRS minimum applicable federal rate. The mortgage is recorded, etc. by a lawyer at the courthouse. This way I can still take the deduction on my taxes, and everything is above board and fair to us both. It's been working well for everyone as he has a steady income stream from it in retirement. But we both know that we are both reliable money-wise. I would never have entered such a transaction with any other member of my family!

[Anonymous]

Anonymous wrote:I financed my home through my father. I pay the then-current IRS minimum applicable federal rate. The mortgage is recorded, etc. by a lawyer at the courthouse. This way I can still take the deduction on my taxes, and everything is above board and fair to us both. It's been working well for everyone as he has a steady income stream from it in retirement. But we both know that we are both reliable money-wise. I would never have entered such a transaction with any other member of my family!

We did the same thing.

[Anonymous]

Anonymous wrote:I would feel like I hit the lottery if a family member gave back what I gave them, let alone pay interest.
The only family members who ever ask to "borrow" money are the ones who have money problems to begin with. It would be unwise for me to expect the money or interest back.

I literally laughed out loud at this.