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appropriate interest rate on loan from parent

(5 Posts)
SarahBumBarer Mon 06-May-13 09:11:59

DM lent me and DH some money around 2 years ago in order to pay of a credit card with an exorbitant interest rate. She lent it to us completely interest free but DH and I agreed that we would pay interest on it at a rate which made it worthwhile for her to have lent the money to us but which still saved us money compared to the credit card rate.

Last year we paid 7% interest being 2 x the best interest rate I could find on the market for the sum involved (£10k). This year we play to pay the same - ie 2 x best interest rate available. The best I can see is around 2.5% although Virgin have a 5 year fixed bond paying 3% so that would mean us paying 6% interest (reality is mum would not want to tie up for 5 years but we tend to be quite "creative" about the terms when it comes to ensuring she is appropriately recompensed)

I was just wondering if anyone was aware of any better rates than that. I'm really grateful to DM for lending the money but want to be sure she does well out of it compared to other options available to her too.

MoreBeta Mon 06-May-13 09:20:00

Santander offering 3% AER for a 2 year cash ISA so the rate you are proposing sounds about right.

ghosteditor Mon 06-May-13 09:24:25

Sounds about right - I believe she has to pay tax on the interest though.

MummytoKatie Tue 07-May-13 09:14:07

Just wanted to say this sounds a really sensible way of doing this as you are both gaining massively.

We don't have anything worth giving us more than 2.49% at the moment.

SarahBumBarer Tue 07-May-13 09:41:12

Thanks all.

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