Equifax

Finance Blog

Stay financially savvy with the Equifax Advisor.

Sign up for our FREE Monthly Email Newsletter

 

Thank you for signing up for the FREE Equifax monthly newsletter

In addition to keeping in the financial know, you may be interested in checking your credit score and report.

Understand your credit. Help protect your identity.

Equifax Complete™ Premier Plan

  • Know What May Influence Your Credit Score and Be Alerted of Changes
    Credit score monitoring with custom alerts
    Important Disclosure: The Equifax credit score and 3-Bureau credit scores are based on an Equifax credit score model and are not the same scores used by 3rd parties to assess your creditworthiness.¹
  • Help Protect Your Identity
    Automatic fraud alerts encourages lenders to take extra steps to verify your identity²
  • Lock Your Credit
    The ability to lock and unlock your Equifax Credit Report³
Save 75% your first 30 days with the purchase of Equifax Complete™ Premier

$4.95 for the first 30 days, then $19.95 per month thereafter. You may cancel at any time; however, we do not provide partial month refunds.4

¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.

²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.

³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.

4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.

Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.

4 Tips for Loaning Money to Family Members

Written by Roger Wohlner on February 8, 2011 in Retirement  |   9 comments

4 Tips for Loaning Money to Family Members By Roger Wohlner Economic events of the past couple of years have made it more difficult for people to obtain conventional lines of credit, and as a result, many are turning to family members for loans for…

4 Tips for Loaning Money to Family Members

By Roger Wohlner

Economic events of the past couple of years have made it more difficult for people to obtain conventional lines of credit, and as a result, many are turning to family members for loans for a variety of purposes.

An inter-family loan has its pros and cons. On the pro side, a family member is not going to check your credit. On the con side, if you default on this loan, it could seriously impair your relationship with the lending family member and other members of your family. And it could severely damage the lender’s finances.

Atlanta-based financial adviser Russ Thornton suggests the following:

I would highly encourage EVERYTHING be documented, countersigned by all parties, and have a third-party witness sign, too—maybe a CPA or financial planner. The documentation needs to state all terms (interest rate, payment schedule, term of loan, etc.) and needs to clearly state recourse if things go sour. Can the lender call the loan early—under what conditions? What if the borrower can’t make payments? Are there any penalties, and, if so, what are they? I think all parties should try to imagine all possible scenarios—good, bad, and ugly—and discuss and document how they would be handled.

While this may seem excessively formal, it is vital to treat any loan transaction among family members as an arms-length business transaction.

Here are some more tips for arranging a loan with a family member:

1. Use a promissory note, committing the terms to writing.Both parties should sign it. The promissory note should contain at least the following:

  • The loan amount
  • The repayment schedule
  • The rate of interest

A promissory note will protect both parties in any number of circumstances that may arise, such as if the loan isn’t paid back.

2. Charge a reasonable rate of interest. An interest-free loan is likely to be considered a gift rather than a loan and could result in the lender having to file a gift tax return. If the rate of interest is below the applicable APR (set by the IRS), the lender could face the prospect of having to declare imputed interest as income. Basically, in this situation the IRS will take the difference between the applicable APR and the charged interest and use it to determine the interest that should have been charged. This extra amount becomes income to the lender and taxes will be due, even though the lender has not received any cash payment of this extra interest.

3. Protect yourself in the case of a death with proper documentation. If your loan is undocumented and one party dies before the loan is repaid, you may face issues. For example, if the recipient of the loan dies before the loan is fully repaid, the lender might come after the recipient’s heirs. If nothing is documented, the heirs can deny that such an arrangement existed, and the lending party would be out his or her money. On the flip side, if the lender dies before repayment, the recipient might say the lender had indicated that the rest of the loan was to be forgiven in the event of his or her death. Again, without proper documentation, this would be hard to prove.

And, most important:

4. Do not lend money to a family member that you need yourself. We all want to help out a family member, but don’t do it if lending the money would jeopardize your financial security.

This article is not meant to be a primer on loans between family members. If you are contemplating asking a family member for a loan or making such a loan, please take it very seriously. Even though family is involved, treat it as a business transaction. If needed, consult with a financial or legal adviser who is versed in this area.

Roger Wohlner, CFP® is a fee-only financial advisor at Asset Strategy Consultants and Retirement Fiduciary Advisors. Roger provides advice to individual clients, retirement plan sponsors and participants, foundations, and endowments.

Follow Roger on Twitter; connect with him on LinkedIn.

Read More:

Strategies for Outsmarting Uncle Sam at Tax Time
Participating in Your Company’s 401(k) Plan Is Not a No-Brainer
All Money Market Funds Are Not Created Equal
Maximize Your 401(k) Returns

9 comments

  1. tomolo says:

    Family unity is more likely to be maintained when everyone knows what is expected of them. Without writing it down a loan can be mistaken for a gift. Thanks for writing this article.

    Tom Olofsson
    http://MyTrustLawyer.com

  2. jude.boudreaux says:

    Great blog Roger! I'm looking forward to reading your regular column here.

    One source I've used for family loans is Virgin Money. They can formalize the agreements and in some cases handle payments between parties. They add a nice formality factor without adding a lot of extra costs to the process.

  3. Tim says:

    Excellent post, Roger! To Jude's point, Virgin Money did a terrific job managing family loans, but withdrew from the US market in November 2010.

    National Family Mortgage has picked up where Virgin left off and is a great resource for managing intrafamily real estate loans.

    http://www.NationalFamilyMortgage.com

  4. Michael Kovacs says:

    Thanks for the post Roger! Would like to let your readers know about our service, http://www.lendingkarma.com as a resource that can help them formalize and track their person to person loans. We've helped thousands navigate this process for loans of all types.

  5. Editor, Equifax Personal Finance Blog says:

    Comment from Steven at ActiveRain:

    Good rules to follow, but a firm "No" is simpler. Fortunately, the few of us that are left are all doing well and I don't anticipate this being a problem!

    http://activerain.com/blogsview/2124982/four-tips-for-loaning-money-to-family-members

  6. Editor, Equifax Personal Finance Blog says:

    Comment from Bob at ActiveRain:

    Oh this can get messy really fast. I've seen some relatives take money and not really seem like they ever intended on paying any of it back while others make it a life's mission to pay it back.

    http://activerain.com/blogsview/2124982/four-tips-for-loaning-money-to-family-members

  7. Editor, Equifax Personal Finance Blog says:

    Comment from Karin at ActiveRain:

    Usually try to stay away from lending money to family members…but good tips if it is necessary!

    http://activerain.com/blogsview/2124982/four-tips-for-loaning-money-to-family-members

  8. Editor, Equifax Personal Finance Blog says:

    Comment from Gerard at ActiveRain:

    Good points. I typically do not lend money unless I expect to lose it! One other point he didn't mention was that you must also properly enforce the agreement; late fees, penalties, etc. for it to be considered a valid contract.

    http://activerain.com/blogsview/2124982/four-tips-for-loaning-money-to-family-members

  9. Editor, Equifax Personal Finance Blog says:

    Comment from Ron at ActiveRain:

    This is a lesson we've been discussing wth our 15 year old daughter who spent about $50 of her Christmas money when a friend asked her to pay for something and "she'd pay her back later". She could have used that money a couple of times but the situation is not comfortable for her to ask her friend for it back…that's why I told her, if you loan to a friend or family member, it's often best to think of it as a gift. If it comes back, that's great but if not, you didn't expect it back anyway.

    http://activerain.com/blogsview/2124982/four-tips-for-loaning-money-to-family-members


Leave a Comment


Name :


Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.


Retirement Archive