[quote=UCGal]
I think the problem in family loans comes when the terms aren’t clearly defined… Parent makes a loan to their grown child – and the kid treats it like a gift… Or the terms are “pay me back when you can”… Those are the scenarios that set you up for bad transactions. I have had friends ask me why I made regular payments to my dad when I owed him money… didn’t it just go against future inheritance. I guess their family operated differently than mine.[/quote]
Exactly right, UCGal. In my family, we always had legal documents, and recorded them if they were used for home loans.
People have often commented about the fact that we paid interest to one another with our family loans (I’ve always had to pay interest to my parents, even as a teenager). IMHO, it’s just good business, and reinforces the fact that it’s real money with a real opportunity cost. We will do the same with our kids whenever they borrow money, or if we ever have to borrow from them.
