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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

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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:

GetOrfMoiLand · 21/03/2008 10:40

This is why the phrase never a lender or borrower be makes so much sense.

Effectively your parents are doing you a huge favour. They are saving you an enormous amount of hassle - applying for a bridging loan with the bank is not a walk in the park, plus the arrangement fees on top would be quite high.

I do notthink it is at all inappropriate for them to charge interest. I think it is quite strange that you think they shouldn't.

SenoraPostrophe · 21/03/2008 13:26

cammelia - there is a massive financial advantage in this loan though because it's unsecured. a commercial loan would cost at least double base rate, and I imagine there aren't many lenders willing to do it at the moment.

RustyBear · 21/03/2008 14:16

I suspect there would be inheritance tax implicatons if they didn't charge interest - if you had the loan for a year,they would probably be assessed as giving you £12,000 (or possibly more if that was below the going rate) & if they died within 7 years, you'd pay tax on it.

2GIRLS · 22/03/2008 02:19

Is the £1000 per month just the interest and you then have to pay the capital on top of that per month or is it a combined sum? Just wondering.

Like you say it is within their rights to charge interest, but is it actually right?
TBH I don't think so, I would never ask for interest off my kids if I was in a position to do that for them.

2GIRLS · 22/03/2008 02:24

And you'll have to take out a bigger mortgage to pay the interest? I just think I would never want to do that to my children when they're young and starting out in life with small children.

It's funny, you hear people say that they'd die for their children, but they wouldn't give an interest free loan?

2GIRLS · 22/03/2008 02:35

If they'd be getting £1000 per month in interest from the bank on their savings, yes it's a HUGE amount of money and I can see why anyone wouldn't want to lose it, but on the other hand what would they do with it? Would they go on luxury cruises while their children struggled?

And people would probably say that they've earned it at their time of life ect and yes of course they have, but wouldn't you rather help your kids out if you can?

My mum has given me money at various times, not big amounts but little bits to help me out adn I always say that she doesn't have to and why doesn't she spend it on herself, but she says she knows how hard it is raising small children and if she has she would rather help me out. I hope i can do the same for my dc's.

Anarkids · 22/03/2008 03:11

I understand charging interest, especially on a large loan. We came close to loaning large amunts of cash to my sis, and wouldn't have charged interest but that was because at the time we were much better off and their family needed our help. It isn't clear cut but in case of OP it is a lots of money that parent would be effectively giving away.

Cammelia · 22/03/2008 11:14

But you can't take it with you

scanner · 22/03/2008 11:23

Perfectly reasonable, my FIL lent me a few thousand pounds for a training course I wanted to do on the basis I didn't have to pay him back until I was working. I now pay him back with interest charged at the same rate he was getting with the building society. Why should he be out of pocket, I'm just very grateful to him.

alfiesbabe · 22/03/2008 11:23

I think you're very lucky to have parents who are doing you a huge favour. If you're not happy with it - try getting a bank loan!!

FuriousGeorge · 22/03/2008 17:08

I wouldn't say they were mean.When I bought my first car,my dad paid for it & I paid him back,plus interest.After all,he had withdrawn the cash from savings & was therefore losing money on it.It taught me responsibility with my finances.

pulapula · 22/03/2008 20:32

I would give my DC a helping hand to get on the property ladder etc, but the OP has a house, but has seen a house she has to have even though her own house isn't sold.

We lost out on a 'dream house' as ours wasn't sold, but that's life and we ended up with an equally good house, better in many ways.

If the OPs house hasn't sold yet, then it's probably overvalued, so her parents are taking a big risk, and could be waiting a long time for their money back.

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