[USER]

A family member borrowed $4,000.00 and is paying it back $100/month.

I know I could invest that money in a high-yield savings account at 5.0% interest, but I don’t understand how much per month I’m losing.

The borrower would agree to pay the interest that I’m losing, but I can’t do the math. Is it $4000 x .05 divided by 12?

Would I then have to lower the total owed by what is paid back each month?

Math teachers, help! I should have paid attention

[Kendra]

I personally wouldn’t charge interest to a family member

[Christine]

To those of you appalled that the OP is charging interest – consider that they are losing the opportunity to earn interest and IF the borrower COULD borrow from a bank the interest would be much higher.

Most likely the borrower cannot borrow from a bank, therefore this is a considerable favor and charging interest is not out of line

[Shirley]

You can print out an amortization schedule online. You need total principal amount, term of loan, monthly payments and interest rate being charged for the loan

[Amanda]

Just google an amortization calculator. Plug in 4,000 and 5% and if will generate a payment schedule.

Also? Ignore the haters mad you are charging interest, especially since you are not even charging them market rate

[Pat]

Is it really that important that you get interest from a family member?

[Lisa]

But you loaned them 4k, not what 4k and what you could have made off it if you invested… If it wasn’t there to begin with it’s kind of crappy of you to want to add it after the fact, just saying.

[Heather]

If you don’t have anything in writing, put it in writing when you tell them the amount.

Writing the date, amount, rate, term and who owes whom (signatures) makes it contract per law.

[Robin]

Don’t loan family money if you’re not OK with not getting it back… this rarely ends like you think it should. Let a bank do it…

this very often ends it broken relationships.

[Kristen]

If your family member is willing/able to pay interest, why not pay that much more in payments back to you so they can pay the debt sooner?

[Anita]

I think that charging interest needed to be talked about prior to the loan. It’s not right to change the terms of the loan after the fact.

Lesson learned for next time…..and, there will always be a next time.

The minute a person has some money, everyone wants it. They even feel entitled to it because you are so “lucky.”

The fact that you amassed a decent savings because you never took a vacation like they did, you drove older cars, didn’t get luxury items, you are sitting on 30 yr old furniture etc.

never even crossed their mind. You are just “lucky.” Oops, lost it there for a second lol

[Alyssa]

The irs intrafamily loan rate maybe something to look into to give you a fair interest rate for right now.

And at a certain loan amount you are required to charge this and pay taxes on the interest as income…

also like others said pull up an amortization calculator to see what payments would be. Hope that helps

[John]

It would take over four years to make your money back but I understand helping out family

[Kim]

After one year, you will have approximately **$4204.64** with monthly compounding at 5% interest.

[Jill]

Early-on in our marriage, we borrowed money once or twice from my Dad, and the arrangement we agreed upon was 1/2-way between no interest and what my Dad would earn if the money stayed in his savings account….whatever is agreeable between the 2 parties involved.

When they get ready to make a payment, you take the current balance owed ($4,000), multiply that by the interest rate (5%), divided by 12 payments per year, and that is the amount of the interest to be paid that month ($16.67).

Subtract that amount from the payment ($100-16.67=83.33), and that is how much is to be paid towards the principal ($83.33).

Subtract that amount from the previously owed amount ($4,000-83.33=$3,916.67), and now you have the new amount owed for the next month ($3,916.67).

The 2nd payment would be: $3,916.67x .05÷12=$16.32…$100-16.32=$83.68…$3,916.67-83.68=$3,832.99…and so on.

[Shanty]

If you have access to Excel, there are templates on there for simple loans.

You can plug in your numbers, however long your loan agreement was for, and if down the line the person gives you more 1 month and then back to the $100 the next month.

It will show a complete breakdown

[Author]

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