Should I charge interest on a loan to my sister?

[questions]

My sister is in a tough financial situation because of unexpected medical bills. She has asked me to lend her $5000 and I have agreed, but I'm insisting that we make a formal contract. The question I have is should I charge her interest for the loan since I will be taking it out of the bank and losing interest on it. Also, should I charge her more than I could get at the bank since I know this is riskier than leaving it in the bank?

[rennigade]

Loaning your sister 5k will be one of the biggest mistakes you will ever make. If you value your relationship with her, do not loan her money.

Even if you do get a formal contract in writting, she'll never pay you back and you'll have to take legal action to get the money back. Its a bad situation. good luck

[atomicrc11]

Just because you loan money to family doesn't mean that you won't get it back. I've loaned my sister money and she willingly paid it back as agreed. It all matters on the relationship you have and how responsible you are with money. My sister needed money for a deposit on a new apartment for a new job and once she started working she was able to pay it back. We all get into situations every now and then where we may need to borrow money.
If you at all feel you sister will not pay it back, or she isn't good with money and you still go through with giving her the money, you must consider it a gift. You might get payed back, but I wouldn't expect it.

[noppenbd]

I would try Borrow and Lend Money From Friends and Family With Virgin Money. They act as a middleman and make it a lot smoother collecting the money. Plus you don't have to be the bad guy if she doesn't pay, because they will enforce the contract for you.

[simpleyme]

usually you can just make payments on medical bills

[glock35ipsc]

No. You shouldn't give her a loan to begin with. I will never loan money to friends or family. "Slave to the lender" comes to mind.

If the medical institution wants to get paid, they will negotiate payments that will work for both of them. If not, your sister can just pay them what she can.

But if you truly want to help her with no possibility of animosity between the two of you, make it a gift. Just give it to her with the stipulation that she help out someone in need someday.

[ithaca]

The last thing I would be worrying about would be the interest rate. No matter how much you trust her right now, things can change quickly and you may never see that $5k again. If your financial situation isn't strong enough that you can afford to lose that $5k, just have her get a loan in some other manner.

[Angio333]

Never loan money to a family member, and if you do.....don't charge interest.

If you want to help her out, make the money a gift.....NOT a loan.

[Snave]

This has happened in our family before and it never turns out good. My mother has had to "loan" some of her family money and then basically they don't speak forever b/c they can't pay it back, etc... Not that my mom even cared, but the person taking the loan built up a wall b/c they couldn't pay. Even when my mom said not to worry about it, it still took a long time for the other person to get over it. In your case, it doesn't sound like you necessarily have the money either since you are taking out a loan. It would be one thing if you had an extra 5k in the bank and "loaning/giving" it didn't cause you much harm. However, I have to question the situation when you have to take out a loan.

[maat55]

I would tell her to settle with medical institution. They will take payments, usually with no interest. Lending money to family is a bad idea. This is a no win situation for you.

[Aleta]

I agree with Maat55 that a medical institution will let her pay this in payments. Loaning money to family and friends is a sticky situation. You didn't mention your own money situation and if you have debt of your own.

I've always heard it said that two things you don't want to do is hire your friends or family and also not to rent to them. It is very diffilcult to throw a friend or family member out of a rented house. It can cause all kinds of problems down the line. More friendships and family relationships have ended because of loans.

If you are in a good financial situation and you can help; there's nothing wrong with that. Always think about how you would feel if the money wasn't repaid. Would it cause you hardship if she defaulted?

[tripods68]

Sounds like you don't trust your sister. To me its all about how you and sister were brought up and closed were you as a family. If so you could probably trust her.

I grew up differently. I would put aside any negative feelings I may have in spite or grievance---if a member of my family asked for my help. Hey that's just me. Don't mean to preach or anything.

But If you can't rely on own family for a loan, tells me you don't trust her to make good of her promise. Then don't loan her the money.

[Exile]

If you trust your sister to pay you back on time, charge her a small interest rate, but also consider giving her a discount if she pays the loan back in full ahead of time.

[PrincessPerky]

A family member is not a buisness money making enterprise.

Loaning is a bad idea in the first place (I agree medical bills can be paid on instalment, usually no to low interest)

but if you feel you must, call it a gift.

[myrdale]

I suggest you think long and hard about this before you do it. Why will the bank not give her a loan? They know she is not likely to pay them back.

We purchased a $400 water heater for a my grandmother for Christmas. My sister and I agreed to go half and half. My sister only had $100 and said she would pay me the other half when she could. I said sure.

About 6 months went by and I never brought it up but every time I spoke to my sister I had it on my mind. Finally I asked her and she more or less forgotten. I felt like a real ass having to ask her for what she owed me. I felt even more rotten for having that cloud over my head every time we talked.

And understand I am only talking about a petty $100. I've given more than that away since then, but that didn't matter, because she was en-debted to me. It's just a really rotten thing I hope you avoid.

[cptacek]

Originally Posted by myrdale

I suggest you think long and hard about this before you do it. Why will the bank not give her a loan? They know she is not likely to pay them back.

We purchased a $400 water heater for a my grandmother for Christmas. My sister and I agreed to go half and half. My sister only had $100 and said she would pay me the other half when she could. I said sure.

About 6 months went by and I never brought it up but every time I spoke to my sister I had it on my mind. Finally I asked her and she more or less forgotten. I felt like a real ass having to ask her for what she owed me. I felt even more rotten for having that cloud over my head every time we talked.

And understand I am only talking about a petty $100. I've given more than that away since then, but that didn't matter, because she was en-debted to me. It's just a really rotten thing I hope you avoid.

There are 9 of us kids in my family, and we all go in together to get Mom and Dad Christmas presents. I've carried various siblings for a few years before they can pay me back. But, I have a list I keep with me, and when we decide what we are going to get, I write all their names down and when they pay me, I pull it out and mark them off. It is kind of a joke: "don't borrow money from cptacek, she has a list!" So, sometimes they forget, and that's ok, because at some point the list is going to come out and we'll get it then!

One sister owed me about $250 from various gifts over the past few years. Her and her husband were always behind on the bills. They are separating, and she has really pulled it together. Saved and bought a $2000 car with cash, payed off all the credit cards in her name, saving up for an apartment (she and her daughter are living with some church friends for now), just really doing good. And she texted me and asked how much she owed me. I looked at the list and immediately texted her back. Then, I realized that looked like I had been stewing over the debt (which I hadn't) and made another joke about it. She was so proud to be able to pay this debt off, and she felt better once it was done. Good for her!

I've lent money to family before, with interest and without interest, I've declined lending money to family before, I've given money to family before, I've paid family for helping me with various home improvement projects and I've not paid family for helping me with other home improvement projects. I've been in business with my father and I'm in the process of ending that business relationship (due to good things, not bad things). I don't think there is one set answer. It depends on your relationship, how responsible the other person is, how much you are depending on getting that money back and if you would bring it up every time you see them.

[Like2Plan]

Originally Posted by Angio333

Never loan money to a family member, and if you do.....don't charge interest.

If you want to help her out, make the money a gift.....NOT a loan.

I agree with Angio333. Sometimes folks loan money that they really can't afford to loan to other family members. When the family member defaults, it puts them in a real bind. If you think of it as a gift, you realize more quickly if it is something you can truly afford to do.

[amarowsky]

I'd say it Depends on relationship and your financial standings. If you can afford it, i would say make it a gift sounds like the best option.

[LuxLiving]

I've found that I personally am not a good lender. I have hard feelings when someone who owes me money goes out splurging on other things rather than paying down their debt - even when they are current on their payments (irrational I know, but that's how I FEEL)...so for me, since I make a cranky lender, I choose to no longer make personal loans. I think it's not just about your sister, part of the equation is how you will feel as she goes about paying you back AND buying other things while still owing you money.

And yes, I'd charge her interest. If she cares about you she's going into it knowing you're losing money by pulling it out of your bank and want the arrangements to be fair to you as well.

[b4freedom]

Don't do it!

It's better that they settle the debt.

What makes me mad about hospitals/insurance is when I went in for an emergency and got a bill for $15,000 and my insurance company who paid $3,000 and it was considered "paid in full". Basically, people without insurance would be stuck paying $15,000 and people with insurance pay the copay while their insurance company pays $3000. How is that fair?