Lending money to an adult child

Yorky

Could anyone advise on how to go about formally lending money to an adult (dependent) child?

The reason for the formality is to impress upon the child that it is not a gift and to avoid potential problems.

The intention is to redeem two existing credit union loans and the parents provide the loan at a lower interest rate.

The parents want to make a formal agreement detailing repayment schedule, term, interest rate, default/late payment penalties etc.

Would appreciate as much advice as possible on the above-mentioned.

Also the tax implications for receiving interest on the repayments.

(Not sure if this is the correct forum - moderators please move to more suitable forum if applicable)

Huggles

I am no legal expert here but you are definitely going to need two separate solicitors which will cost a few bob.

As an aside, if this adult chiild is having difficulties replaying these commitments (I assume that to be the case) why are the parents confident that they will get their money back?

Personally, i would not go down this route too much at stake when family is involved. Are there other siblings in the family? How do they feel about it?

RedXIV

I'd go with the above, If there is no leeway with parents and they are looking for interest and late payment penalties etc, I'd just keep it with the Credit Union.

Either
A) they can pay the parents without issue in which case there is no reason they couldn't pay the two loans or
they have an issue paying the credit union loans which will likely result in issues paying the parent's loans.

And for there I'd be worried that it could damage the family relations.

Yorky

Huggles wrote: »

I am no legal expert here but you are definitely going to need two separate solicitors which will cost a few bob.

No necessary - will draw up agreement ourselves.

Huggles wrote: »

As an aside, if this adult chiild is having difficulties replaying these commitments (I assume that to be the case) why are the parents confident that they will get their money back?

Repayments up to date with no missed payments. The parents are already gaurantors for the loans

Huggles wrote: »

Are there other siblings in the family? How do they feel about it?

One other sibling (dependent child) and they have no problem with it.

The motivation for this is to save the child money via a lower interest rate and provide a reasonable return for the parents

_Kaiser_

This will probably be unpopular...

Seems a bit harsh to me - charging your child interest, penalty fees, contracts etc?

I completely get that you obviously want to teach them a lesson and obviously if you and your wife are guarantors on the CU loans you want to make sure that's covered at the end of the day - but if the child is so bad with money, why did you agree to back not one but two loans at all?

As a parent yes I'd want to make sure they realise this is the "last chance saloon" but as the child I'd rather deal with the CU if those strings are to be attached to it - what do you plan to do if he/she can't make your repayments for whatever reason? Charge them fees on an amount they already can't meet? What then? Have you fully considered the potential fallout for the family? Why do you expect a return on it at all? I've never heard of a parent charging interest in the manner you propose.

To be honest - and this is just my opinion - I think you need to rethink this. [EDIT:] Actually I think a better "lesson" may be to make them face up to the situation by negotiating with the CU directly.. you won't always be there to "bail them out" after all

unclebill98

As said above if you want to teach them the value of money send them to deal with the debt with the folks who lent it to them. There are plenty of options.

When it comes to lending family money only bad will come of it. Seen cases like this far to many times.

I've had families in front of me stating all you are stating only to see words not kept, agreements being ignored etc. After all if it does go bad are you really going to force a signed contract onto them?

0ph0rce0

Jesus, any decent human Parent if they were in the situation to be able to help clear the loans for (especially thier child) would just ask for payments to be made to clear the debt and leave it at that. They already learned thier lesson about the value of money if they cant pay.

Interest, Late Payment Fees, Tax - MAD oul family.

But to be honest if that was me, I'd rather just continue the loans myself and be a tramp until its cleared off, Too much hassle, and family always end up fighting.

Scortho

What happens if the child just refuses to pay? How would the parents feel if they had to go down the legal route in order to get the money back?
If the parents want their child to save money via a lower interest rate, why don't they set up a new account put in the difference between the credit union interest rate and the rate they would have charged him.
At least that way their risk is significantly reduced and the child benefits as well.
Many families in this country have fallen out over money!

Huggles

Yorky wrote: »

No necessary - will draw up agreement ourselves.

Ok I imagine you have no leg to stand on in court if God forbid it should head that way.

At the very least you should both get independent legal advice.

You seem confident that all other bases are covered.

Anyone

Would it even be a legally enforceable agreement? Surely if you are charging interest and penalties etc, you effectively become a money lender?

BuffyBot

You need professional advice on this, really.