Any Interest?


Talk About a Family Feud

Our friend Joan was in a tough situation.  After several electrical mishaps, she found out her entire home needed to be rewired.  The cost itself was shocking – $5,000!  She didn’t have the cash, and didn’t want to resort to credit cards, so she turned to family — namely her cousin Molly – and asked her for a loan until the end of the year.

Molly immediately said yes – of course – she would be happy to help!  Thankfully she was in a position to loan Joan the money, and Joan wasn’t just family, but a dear friend.  So far so good, right?

Molly, being ever the practical gal, went over her accounts.  She tallied up that she would be losing out on several hundred dollars interest per year by loaning this money out.  When she handed Joan the check, she mentioned that there was no rush – just to pay it back whenever she was able – with the corresponding interest rate that it would have been earning in Molly’s savings account.

Joan was beyond horrified and embarrassed!  Being charged interest — by a family member?  She couldn’t believe it.  But from Molly’s perspective she was being generous – after all, she was not only loaning her the money, but not giving her a specified date to repay it by.

Have you ever lent someone money?  Have you ever borrowed money from a family member or friend? How did it work for you?

Is Molly cheap or frugal to include interest as part of a loan to her cousin?  Is Joan cheap not to have offered to pay Molly interest in the first place?   What is the best protocol when lending or borrowing money so it’s fair to both parties involved?  How do you manage each others expectations so the relationship doesn’t get damaged?  Tell us what you think!

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7 Responses to “Any Interest?”

  1. Diane says:

    If you borrow money from a bank the interest you would be paying would be much higher (somewhere between 6%-8%) than the interest Molly would be getting from her savings account (which currently is less than half a percent). Why should Molly loose money because she is doing her cousin a favor? She is saving Joan a lot of money by lending her the money rather than Joan borrowing from a bank. I don’t think Molly should make money on her cousin by charging her bank interest, but she should get the interest she would be loosing from her savings account by giving Joan the money. Joan should have offered to pay Molly the interest to begin with. Joan was being cheap and thoughtless. Once she realizes that Molly would be loosing money by helping her out, she should apologize to Joan and INSIST on paying the interest.

  2. Nikki says:

    I agree with Diane. Molly should be repaid the amount of interest she would be losing by not having that money in her savings.

  3. NJJ says:

    Regardless of kinship or friendship Molly proposed the loan to Joan as a business plan which she should have after all the law is based on legalities NOT moralities. However, she should have drawn up a contract an had it notarized and should have definitely set a loan re-payment date to counter any of the “he said, she said” mentality By not have an established re-payment date she opens herself up to losing money that she might never see again not to mention that it could take years to get all her money back, and could give leaway to Joan to be irresponsible financial since she would have “plenty of time” to repay her friend back. Joan could have also declined the loan if she didn’t like the terms and conditions

    When it comes to morals and money they are often two separate clauses unfortunately where the only remedy for everyone is to never do business with friends or family. The heartache just isn’t worth it in the long run!

  4. Pat says:

    My two cents: In my mind, Molly is neither cheap nor frugal – she is plain smart. And I don’t fault Joan for being embarrassed – because the best thing would have been for Molly to initiate a conversation BEFORE handing the check over. Going over details up front could have solved any awkward embarrassing moments for both parties.

  5. Aimee says:

    I have borrowed and lent money to family members when they or I needed it. Its usually been a couple hundred dollars, I dont think I could ever ask a relative to loan me thousands of dollars nor am I in a position to lend anyone that kind of money. $5000 is a lot of money that would cause an uncomfortable situation for even the closest relatives or friends.

    I do, however think that Molly in increadibly cheap! How much interest is she really losing? I’m certain its less than $100. She should take that lost interest and consider it a deposit into the karma bank and hope that if she is ever in the situation where she needs help from another human being who is in the position to offer it, she will get it without being reminded of the minor inconvinience it may cause them.

  6. Emily says:

    If you borrow money from a bank the interest you would be paying would be much higher (somewhere between 6%-8%) than the interest Molly would be getting from her savings account (which currently is less than half a percent). Why should Molly loose money because she is doing her cousin a favor? She is saving Joan a lot of money by lending her the money rather than Joan borrowing from a bank. I don’t think Molly should make money on her cousin by charging her bank interest, but she should get the interest she would be loosing from her savings account by giving Joan the money. Joan should have offered to pay Molly the interest to begin with. Joan was being cheap and thoughtless. Once she realizes that Molly would be loosing money by helping her out, she should apologize to Joan and INSIST on paying the interest.

  7. If you are in not good state and have no cash to move out from that point, you would have to receive the home loans. Because it will help you definitely. I get car loan every year and feel myself good because of this.

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