if i lend £6000 TO A CLOSE RELATIVE, TO BE PAID BACK MONTHLY AT £200 PER MONTH, WHAT INTERESE OUGHT I CHARGE

Question

ASSUME AROUND 5% INTEREST WOULD NORMALLY HAVE BEEN PAID TO ME IF I HAD KEPT THE MONEY IN MY BANK. WHAT IS A FAIR TOTAL AMOUNT TO PAY BACK ASSUMING ALL PAYMENTS ARE MADE ON TIME

Answer 1

Be extremely cautious lending money to relatives; you could lose more than the money. Make sure you have an agreement with all the details and that you both sign it.

If you are intent on going forward and wish to keep yourself "whole" then you would charge a 5% interest rate compounded monthly. The interest rate factor would be 5%/12 = .0041667

Based on starting principal of $6,000 and monthly payments of $200;

After first month interest added is $25 and payment is $200 leaving new balance of $5,825

After second month interest added is $24.27 and payment is $200 leaving new blance of $5649.27

There would be a total of 32 payments made; 31 @$200 and the last payment of $22.89

Total value of the payments made would be $6222.89 of which $6,000 represents repayment of principal and $222.89 is interest.

**Note** Generally banks charge a higher rate of interest than they give out for money on deposit. The difference can be 4% or more and represents one of the ways bank make money. The higher the risk the higher the rate of interest charged. A relative would be getting a bargain if you charged the banks deposit rate. If you are so inclined you can discount the rate further but I would discourage it. Why should you subsidize the loan by taking less than the market rate for your money? **

Answer 2

Charge 1% less than the bank would. That way you'd be making money on your money.

Of course, it's a bad idea to lend money to relatives and/or friends. If you do you make sure you have legal documents and go see a lawyer. You don't want to end up in court with a he said, she said argument and no proof to back you up in case the relative in question doesn't pay you back.

If you are feeling extra lucky you can go to a bank and co-sign a loan for them but then you'd be responsible if they don't pay and if they make late payments it would muck up your credit record.

Answer 3

You are talking of interest. You are not talking of the principal sum!
When did you become a money lender? Are you authorised by law in case of default and the need to go to court?

Lending money to a close relative and charging interest is like one behaving irresponsibly. Instead, take your relative to the bank and guarantee the loan.

I will be the last person to work out interest for you since you do not know banking.

Answer 4

if its a close relative forget the interest
what happened to family values and helping each other

Answer 5

5%!!!