Who should cover fees & interest on a $1000 loan—borrower or lender?

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  • #126857 Reply
    USER

      Hello everyone. While this is not FIRE related I am coming to you as you are financially savvy, hopefully reasonable people and this is creating a huge argument within family members!

      I will use a small amount to make it simpler however this is a large loan.

      Say you let someone borrow $1000 from your line of credit.

      It took them a month to pay it back and within that month the Bank automatically took $50 from your account for the minimum payment.

      Then charged interest on the line of credit.

      When the person returns the funds do you expect the person to pay
      A. $1000 initial loan + interest

      B. $1000 initial loan + $50 minimum payment + interest

      C. $1000 initial loan only

      This is very common sense to me but please thoughts !

      #126858 Reply
      Priscilla

        It’s a lot more complex than that especially if it’s a credit card which you also carried a balance on.

        I’d say I would want the initial loan + whatever interest agreement you made.

        If it wasn’t previously discussed then take as lesson learned

        #126859 Reply
        Tweetie

          My thoughts: you need to find out exactly when your statement end date is.

          This way your client (the person you are loaning money to) has at least a full 30 days before a payment is due.

          If I was borrowing money I would expect to pay an application fee, interest and original borrowed amount

          #126860 Reply
          Sam

            They pay:
            The principal, $1,000
            The interest, whatever bank charged you

            The risk premium, the amount you earn for possibly not being paid back
            So, assuming 4% interest

            $1,000 Principal
            $3.33 Bank Interest
            $100 Your margin
            =
            $1,103.33

            #126861 Reply
            Tweetie

              Here is how a credit card work, which should be similar to a line of credit.

              There is a statement cycle begin date and cycle end date and payment due date.

              Now let’s insert some numbers:
              Cycle start date: 11th
              Cycle end date:10th
              Due date: 8th

              Anything that is charged between ‘March’ 11th to ‘April’ 10th will be due on ‘May’ 8th. As long as the balance is paid in FULL, no interest will be charged.

              …anyone who knows how this work is going to fight you tooth & nail if they haven’t had the “loan” with you at least a month and you are trying to make them pay extra.

              That $50 payment the bank took was likely for a balance you already had with them previous to this “loan” you got into with this other person.

              #126862 Reply
              Jenn

                The question is what did you two agree to?
                And never loan anyone money you can’t afford to lose.

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