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.