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General loan question

Discussion in 'General Chat' started by Lantern, Sep 21, 2018.

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  1. Lantern

    Lantern

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    This is the scenario.
    Lets say a friend wants to borrow 20K.
    He is already paying 10.3% on a car loan, he says he is prepared to pay the same %
    Now if I wanted to structure the loan so that he pays some $$ at the end of every month and I then add interest on the balance.
    Same next month, he pays some off and I add interest on the balance.
    And so on until it's paid.
    The question I ask is what is a fair monthly interest rate to charge seeing as it's compounding.
     
  2. Habakkuk

    Habakkuk

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    0.82% per month
    i.e 0.82% ^ 12 = 10.2961%

    too simple, because you want him to pay off the loan so you need Excel to calculate monthly repayments same as a mortgage
    that would men equal regular repayments, otherwise you need to recalculate the interest component every month on the current balance.
     
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  3. Lantern

    Lantern

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    Thanks. The reason I want to structure it as above is so he can pay what he wants at the end of every month. This just in case he has a rego coming up or needs tires. etc.
     
  4. SirRumpole

    SirRumpole

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    It would depend on how much he wants to pay each month. Is it a fixed amount or discretionary ?
     
  5. macca

    macca

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    They seem very generous terms, do you intend to document this loan or are you prepared to write off the $20k if you have a disagreement ?

    What happens of he gets sick or unemployed ?

    I know of two formerly very good friends that now hate each other and a family torn apart because of loans not paid.

    It is a situation that is created with the best of intentions but so often ruins relationships, sad to see but very common.

    Good luck
     
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  6. Lantern

    Lantern

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    It would depend on how much he wants to pay each month. Is it a fixed amount or discretionary ?
    He will be paying around $600 per month.
    They seem very generous terms, do you intend to document this loan or are you prepared to write off the $20k if you have a disagreement ?
    He has worked with me for around four years. TBH can't see us having a disagreement. He's ex Navy and a man of some principles.
    What happens of he gets sick or unemployed ?
    Unemployed is highly unlikely. He's too useful around the place. It's a company two others and I started in 1985. We now have 28 employees and turn around 5-7mil per year in a fast growing industry. Although the first 15 years were slow.
    I know of two formerly very good friends that now hate each other and a family torn apart because of loans not paid.
    I'm sure we all do.
    It is a situation that is created with the best of intentions but so often ruins relationships, sad to see but very common.
    I am aware of this and yes I did make the decision to do it, otherwise he couldn't have bought his house. It's not mortgaged, he paid cash. Which is the value of the materials in the shack.
    Good luck
    Thank you.






     
  7. tech/a

    tech/a No Ordinary Duck

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    I’ve done exactly the same for many employees and family.
    Probably around 8. Interest free.
    I keep the car in my name until paid in full.
    At which time they pay transfer and associated costs.

    Just work out an amortisation schedule.
    The only thing I do insist on is that the vehicle be comprehensively insured in my name and registered and insured also
    This is added to the loan on a yearly basis and is in the schedule.The payments must be regular monthly.

    They can and have paid loans out well in advance of the full term to buy new cars etc.

    I did have a step daughter who got done DUI stopped paying and went off the rails which still remains that way today.
    Even though she kept the keys I just went around with a recovery crew and dragged the locked and fully braked car onto the transport,

    No problem as it was mine and she forfeited 2 yrs payments.But had 2 years use interest free,
    I don’t sweat the small stuff! Everyone knows that’s what I’ll do on the first default. Including Son and Daughter
     
    Last edited: Sep 23, 2018
  8. tech/a

    tech/a No Ordinary Duck

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    Oh and why didn’t he pay 20k short on his mortgage at around 5% and buy the car cash?
    Bit strange.
     
  9. sptrawler

    sptrawler

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    He probably wants to pay the minimum possible.:roflmao:
    Just my opinion.
     
  10. sptrawler

    sptrawler

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    Myself and a friend, wanted to invest, we borrowed from his mother at a fixed interest we were all happy with.
    Interest rates dropped, she did really well, we were working so everyone was a winner. :xyxthumbs
     
  11. Value Collector

    Value Collector Have courage, and be kind.

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    Tell your friend to apply for a loan through rate setter, and you lend your money on the rate setter platform, then let them manage the loans for you,
     
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  12. luutzu

    luutzu

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    He's not really your "friend" is he? Just a business opportunity.

    Friends would just hand over the cash and expect it back whenever.

    Not passing judgment, just saying...

    Since he's not a friend but a potential opportunity you can make above average return on... safer to put it into stocks or a bank deposit.

    That way you can get to keep both your money and your friendship. And not have to send over people to break knee caps and other unfriendly activities.
     
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  13. luutzu

    luutzu

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    The Viets have a saying... to lend to people you know is like giving them money so they'd hate you later (when you demand, threaten, plead for it back).

    Put a loan shark between friendship and money. :xyxthumbs
     
  14. Value Collector

    Value Collector Have courage, and be kind.

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    Yeah, if anyone is interested in making personal loans and earning above average interest, but doesn't want to ruin friendships by 'Loaning sharking' your mates, just head over to the rate setter website.

    I have been lending here for nearly a year now, its a great platform.

     
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  15. luutzu

    luutzu

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    So you got no friends or you value both their friendship and your money? :D
     
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  16. systematic

    systematic

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    I've ended up in the general chat area unknowingly (initially) and was about to click away (as I stay right away from this forum)...but I just fancy replying, so - oh well for personal rules :D

    Somewhat echoing luutzu's sentiment (albeit probably a step further), I really like the advice of Dave Ramsey on this topic (US version of Paul Clitheroe types), as he keeps it consistent, clean and simple.

    The basic rule here is: if you want to help someone - that's entirely your choice - so if you're choosing to do so...then give. Go for it. As long as you're not enabling bad behaviour and honestly helping someone...give.

    Or don't.

    That's it. Give or don't give. But don't loan.

    From my observation, it's a simple, clean and good rule. If I want to help someone, and I believe money will help the situation, and I want to give...then give. That way it's gone - let go, written off. I've heard some traders think the same way when they place a trade...they write off the amount risked on trade open.

    If you don't want to give, or are worried you're enabling bad behaviour...or you DO want to give but DON'T have the capacity to give...then don't! In other words, according to this outlook...even if giving would be good and helpful in this situation, and you want to do it...but you don't have the capacity...then don't go looking for other means by which to try and help. This is where giving turns into loans, gaurantor situations or even early giving of inheritances etc.

    I wouldn't expect everyone to agree...and I'm not even saying this is correct 100% of the time in 100% of all possible circumstances!

    But it's not a bad principle to live by - makes decision making pretty easy: 'Will giving help or hurt this situation? If it would help, am I able to do it or not?'

    I've seen parents help kids with loans - which hasn't helped the kids build their own financial discipline. I've seen gaurantor situations (from parents and well meaning friends) that have resulted in either (a) broken relationships due to the loan not going to plan or (b) everything goes to plan financially - no problems, but resentment builds in to a relationship that has now changed due to the gaurantor situation causing a sense of obligation to behave certain ways.

    Anyway - now that I've given my half of 2 cents, I feel like I should contribute to the OP's actual question (always a good idea), so I've attached a very simple spreadsheet that might fit the bill of what you were looking for @Lantern I've deliberately used more columns than necessary, as it keeps it simple and straightforward for anyone who might find this sort of thing confusing.
    It's simply updating the balance daily, based on interest and any payments made. You could adjust it for your own purposes if it didn't suit, but it seems reasonably close to what you want. (Use at own risk...this doesn't constitute financial advice, blah, blah, blah)
     

    Attached Files:

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  17. SirRumpole

    SirRumpole

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    So what sort of return do you get ?
     
  18. Value Collector

    Value Collector Have courage, and be kind.

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    Interest rates fluctuate, because its like a market for loans.

    As of right now

    1 Month - 4.0%
    1 year - 4.9%
    3 year - 8.0%
    5 year - 9.2%
    Green loans - 6.4%

    Loans are paid back with monthly principle and interest payments, and you can set it to automatically reinvest those repayments as they come in new loans at the market rate.

    Once you set up you account you simply B-pay funds in, and allocate they into the loan market of your choice, You can invest as little as $10.

    If a borrower fails to pay either principle of interest, your loan gets paid from the provision fund, which currently holds about $10 Million in reserves, and they seem to manage the provision fund well, its funded by a fee that the borrowers pay.
     
  19. Value Collector

    Value Collector Have courage, and be kind.

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    My simple rule with lending to friends and family, is never lend more than you could afford to gift them.

    Treat is as a gift in your mind, and if the money comes back its a bonus, but never become some ones bank, there is only one serial borrower in my circle, and I told him years ago I wasn't a bank, and I don't lend people money and except for one time that was an actual emergency, he has never asked again, I think he knows he will get a lecture and not the funds, lol.
     
  20. SirRumpole

    SirRumpole

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    Sounds a good deal, better than term deposit rates. :xyxthumbs
     
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