Wrong to charge interest on family member who borrowed large sum of money?

[Dinosaurhearmeroar]

Not my story but someone else’s - two close family members involved. One had lent a large sum of money (five figure sum is all I know) to help them out financially due to a horribly expensive divorce.

there has been a fall out due to lending party asking for interest on loan as the loan will take a long time to pay back and lender is considering their financial situation and future inflation etc.

both parties single so no other people to rely on really financially. Lot of tension now.

being unreasonable - the lender, it’s family.

not being unreasonable - borrower, family member is doing a big favour here and is being very careful with the coffers.

I know my thoughts but love to hear others!

Lender is being unreasonable. Unless there was a written agreement in place. They shouldn’t have lent in this official way and have any expectations of interest or terms or repayment

Of course the borrower should pay any money that the lender will be losing

Not unreasonable to charge interest on a loan. If they don’t like it they can go to the bank. No reason why family member loaning should forego the interest they’d have got by saving or investing the sum.

I've just loaned my parents £35k. Personally the interest wasn't worth the hassle of declaring it and paying the tax so we've done in interest free.

Am inferring that no interest was agreed, so no interest can be charged.

Was a repayment schedule agreed, and if so, by how much is the loanee behind? If there’s any leverage, it’s here. Even if the schedule was agreed verbally, morally it should be respected.

Legally however, lender is a bit fucked.

I wouldn’t dream of charging interest to a family member. When I borrowed money, not from a family member but from a family trust, the lawyers insisted on a proper agreement to be signed, so everyone knew where we stood and no resentment. The terms should be agreed in advance and in writing. Can’t change it now.

Was interest discussed at the time the loan was given?

The lender was exceedingly foolish to lend it in the first place.

However, the borrower should have insisted on paying a nominal interest rate, an agreed repayment period and had a formal agreement drawn up before the loan was paid out.

For me it depends on which family we're talking about. I can't imagine charging DC interest if they needed to borrow money for something out of their control like a divorce (actually I wouldn't lend it I'd gift it, but that's besides the point).

But if it was say a sibling borrowing money for a business venture or debts then I'd charge interest, but as others have said, only if that was agreed at the start so everyone knew where they stood.

IronEverything
The lender is clearly only being asked because the divorcee have no other options. That money in a bank account would be earning the lender interest so why should they lose money because they're helping someone out?
This makes sense in the black and white sense but almost cruel given as you said the person had no other options.

It’s whatever they agreed at the start. If the interest was agreed then I don’t think it’s unreasonable (family or not). If it wasn’t previously agreed then interest shouldn’t be charged. Unless the person who took the loan is taking longer than agreed to repay.

So shouldn’t the borrower be extremely grateful not a tight arsed wanker about it.

Not unreasonable to ask for interest as long as the amount is agreed before the loan is given, it would be unreasonable to inform the person paying it back interest will be added after they’ve accepted the loan

They will have lost interest on the money loaned. This should have been sorted out beforehand

While I agree with you, from what I'm reading the borrower has alao taken longer than agreed to repay the loan so we can interpret that as the original terms of the loan has been broken and new agreement is required or she pays up asap.

Yes she should not be trying to add interest after the fact but none of this would matter if the loan was repaid as agreed in the first place.

Also lessons for others, as the saying goes don't lend money to family embers that you're not willing to lose. If you decide to go ahead make sure it's is documented and you include contingencies and terms instead of just a verbal agreement which can easily result in he said she said arguments. Lending money to friends and families affects the relationship.

Never lend money (especially to family and friends) that you can't afford to lose, they're only asking because they're a bad risk for a commercial loan.

Personally, I wouldn’t loan money of any amount, to anyone, UNLESS I was happy to receive back the exact amount I loaned. Which I am. If I‘m happy help someone out in a difficult situation, I’m not looking to recoup losses or charge for the favour.

We've been in a high inflationary environment for several years now and the reality is that lending a 5 figure sum over several years means the lender making what could actually be quite a substantial loss. If lender can afford to do without that, great, but lots of people might be in a position to temporarily lend the money without feeling they can also do without the benefit of it iyswim.

But... this needed to have been agreed at the time. If it wasn't, not sure it can be expected now.

Well..

1. Never lend money to a family member (that you can’t afford to lose)
2. if you do, get a basic legal agreement drawn up

but yes, charging interest on a loaned amount is perfectly reasonable.

As long as it was all agreed when the loan was given, not introduced later then it's perfectly reasonable. Lending someone a large sum of money is pretty generous and it means the lender is not getting any investment return on their money. I wouldn't expect it to be a huge profit personally, but offsetting money lost is not unreasonable.
Many people don't lend money for good reason. The risk of not getting such a huge sum back is not something to be taken lightly. Generally the people who will come ask for a loan from family are not a good financial risk otherwise they'd go to the bank.

No problem with charging a relative interest, pre agreed - why should you do someone a favour, and get back less in worth than they lent. Honestly though lending money is bad idea and it's best avoided.

I don't think it's neccessary to charge interest to a family member - assuming the money is repaid in a timely manner as agreed.

It's worth noting that interest charged on a loan is taxable and should be declared to HMRC.

They're still doing someone a big favour even with interest, they won't have access their money for a long time and that's if they ever get it back - is that not enough or do people think they are entitled to put their hands in someone's pocket and dictate the terms!

I agree. If lending the money costs someone something, that whole cost should be repaid. Charging someone the % they would earn as savings is still way cheaper than getting a loan from a bank.

It would depend on the family member, the amount of money involved and the timescales whether I would choose to do it or not, but I don’t think it’s unreasonable.

What if the agreement was “I’ll pay you back next month” but they didn’t? Surely they can add it from that point on?