[quote=UCGal]CAR – my family sounds a lot like yours. We’ve had loans between family members on both my side and husbands side. But they documented with signatures, and were not in any way considered gifts by any of the parties.
Interest rates were typically even or near even with market rates.
One family member, on my side, defaulted. Then he got upset with the parent involved would not issue a new loan. He didn’t get much sympathy from other family members when the parent presented a copy of the signed loan agreement of the previous loan – including payment records showing when it defaulted. He got over it because he knew he was in the wrong.
As long as ALL parties know it is not a gift. Have scheduled payments, an amortization schedule, etc… It can work very well. The problems arise when one party thinks it’s a gift, because the terms aren’t well defined.[/quote]
Exactly. Documentation is everything with respect to these deals. I would add that ongoing, open communication about finances and personal responsibility, from the earliest possible ages, helps keep everyone’s expectations in check.
Most of the kids I’ve known who’ve defaulted on family loans were never responsible in the first place, behaved as though they were entitled to assistance, and were always very selfish in all of their personal dealings. Of course, many parents are in denial and want to give little Johnny or Susie everything they can to “get a leg up,” but I’ve seen that backfire too many times. It’s like those kids who get a brand new BMW convertible for their 16th birthday…and crash it within the month…then get a new one to replace the first “because it wasn’t their fault,” and on and on it goes. I’m sure you’ve seen it, too.
