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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

Original poster

To think my parents are weird for charging interest on a loan?

162 replies

aretheymean · 19/03/2008 13:00

I'm genuinely interested to see what other people think about this one. (have namechanged for annonymity)

Background: my parents are both retired, live in a mortgage-free house, have a more than adequate retirement income and do not have extravagent tastes. They recently sold their second house (with no mortgage) so have a large sum of capital.

They have offered to lend me and dh a considerable sum of money, basically as a bridging loan to buy a house before we sell the one we are in.

We have agreed to pay the bank base rate in interest, which will amount to roughly £1000 a month.

I was telling my friend about it and her response was "oh my god, bank of mum and dad don't charge interest!!!!"

I am now thinking they are being pretty mean (although clearly totally within their rights) in charging us interest - what do other people think?

(I have to go out now but will check back later)

OP posts:
Twiglett · 19/03/2008 13:36

LOL @ WT

jumpingbeans · 19/03/2008 13:37

This bank of mum and dad don't charge interest, in fact were bloody lucky to get the money back,if it was just saving's (not all our savings)I would just give it as an inheritance gift,would make a note in the will saying they have had theirs already though

fembear · 19/03/2008 13:37

Why don't you persuade your friend to borrow the sum (interest free) from her Bank of Mum&Dad and then lend it to you at half the going rate.
Everybody's happy then.

princessmel · 19/03/2008 13:38

I borrow from my Parents a lot. Dad always charges the interest they would have got if it had been in the savings account. So they doesn't miss out.
Its very helpfull that they can lend the money. You should be grateful.

YABU

booge · 19/03/2008 13:44

I pay interest to my Mum as she has very kindly lent us a "considerable" amount, considerable to us anyway. Her thinking is that by paying her interest instead of a bank the money stays in the family, we pay her less than a bank would charge and she gets slightly more than they would pay. Everyone wins. As she is retired of course she needs the interest to maintain her standard of living.

Bramshott · 19/03/2008 13:50

This is good I think. We have borrowed money from my parents for our extension and they have been adamant about not charging interest and not setting a repayment date, and tbh, this makes me feel a bit wierd about it and very beholden(and DH even more so). However, we are broke so I'm not complaining, just trying to pay them back as soon as we can.

jumpingbeans · 19/03/2008 13:52

Bramshot, do not feel beholden to your parents for what they are doing, if you were in that position would you not do the same for your dc

theyoungvisiter · 19/03/2008 13:54

I don't think they are being mean but they should be aware that it takes them into a different legal area.

For eg legally they have to pay tax on the interest they charge.

girlfrommars · 19/03/2008 13:55

So they lend you a large sum to help you out, and lose the future interest on their savings as a result (and quite possibly lose money by cashing in investments to have the lump sum available) and they're being mean because they're charging you interest?
Your friend needs to grow up.

Flibbertyjibbet · 19/03/2008 13:55

Parents are lending money at a VERY cheap rate (have you tried getting a bridgeing loan? The last one I heard about charged 1.5% of the sum borrowed PER MONTH - a massive rate of interest compared to usual mortgage apr).
They don't know when they'll get it back.

Wow this op's parents are doing a massive favour.

Friend sounds a bit to me about the new house.

Blueskythinker · 19/03/2008 14:14

This is very generous of them. We borrowed money (£200,000) from PIL as bridging loan, and we matched the rate of interest they were receiving in the building society.

It would never have crossed our mimds for a moment for them to have lent us interest free. We were just immensely grateful

kekouan · 19/03/2008 14:19

I think they are mean - a small amount of interest, maybe - but same as a normal loan? That's mad!!

Bink · 19/03/2008 14:23

Er kekouan - they are not asking the same as a "normal" loan in the circumstances - see flibbertyjibbet's post & mine re bank base rate.

lalalonglegs · 19/03/2008 14:23

I borrowed £40k from a family member and matched the interest - obviously didn't have application fees, could agree repayment stucture etc so I came out of it well and so did she. Your friends sound as if they just expect Bank of Mum and Dad to be a charity.

maisykins · 19/03/2008 14:25

My main concern when I read this was that I hope you arent taking too big a risk with the housing situation - bridging loans are risky no matter who has lent the money - but I guess thats not what you are asking about! All families are different in how they deal with money - we offered to pay interest to the PIL on a small (car) loan a few years ago but they kindly refused - we would not have been upset if they had accepted though.

Kewcumber · 19/03/2008 14:25

kekouan - they are charging Bank of England base rate which is 5.35% which is about a quarter of what a bridging loan would cost commercially (if you're lucky)

Kewcumber · 19/03/2008 14:26

sorry 5.25%

kekouan · 19/03/2008 14:29

oh, sorry. misread it.

:-/

happynappies · 19/03/2008 14:30

My PIL charge interest on loans which I though unusual when I first heard about it, but now I totally see why - particularly on larger sums of money. They don't do it to make money out of us - just to cover their losses... My parents don't charge interest, but now I would make sure that I paid them interest if I were to borrow from them because I simply don't think it is fair not to. My parents aren't very financially astute - siblings take advantage of this with Bank of Mum and Dad loans, but it means they lose out. Don't listen to your friend. It probably sounds unusual to her - but your parents are not mean. It is very fortunate that they are able to lend you the money on any terms - let alone Bank of England base rate... don't worry about it!

Flibbertyjibbet · 19/03/2008 14:30

I think there is also an arrangement fee for a bridging loan so the op's parents have also saved her that.

pollywobbledoodle · 19/03/2008 14:31

think it's reasonable for them to charge the interest....when i had to borrow some off my mum, i expected to pay it and did.

pollywobbledoodle · 19/03/2008 14:32

i paid what her money would have earned in her account btw

jazzandh · 19/03/2008 14:33

I borrow from my parents occasionally and pay "savings" interest. Cheaper than I could get a loan, "flexible" repayments (if needed) and you don't feel indebted in the same way - like it's a hand out. Everybody happy.

expatinscotland · 19/03/2008 14:33

Why shouldn't they? It's a loan, not a gift.

Shop around, if you can find cheaper interest rate elsewhere, a thanks but no thanks for the kind offer to your folks goes a long way.

They didn't have to offer you anything at all.

Just because they have money doesn't mean it's yours for the taking.

handlemecarefully · 19/03/2008 14:33

If it is a long term loan I think interest is understandable - all to do with how long you will owe them money. If you can and will pay back within a couple of years they are being a little mean, however if it is longer term then it is perfectly reasonable that they should charge interest

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