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I borrowed 500.00 from a friend, several years ago, and want to repay him. Although the subject hasn't come up, it has always bothered me. What kind of interest should I apply to this personal loan?

closed as primarily opinion-based by Dheer, Victor, MD-Tech, keshlam, JoeTaxpayer Oct 18 '16 at 1:38

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    If you did not agree to an interest, then do not pay an interest. In that case I would use a rule of thumb of 5%. Let's say 3 years, then it is 15% (Yeah, its only linear, but stay with me). 15% of 500 is 75. So what would I do is searching for a nice present with ~80-100 value and give it together with the money. This avoids the awkward thing of paying more than borrowed without request (he could e.g. not accept it, making you feel bad because you know it's unfair) and giving exactly the value (which gives no feedback that your friendship is precious). – Thorsten S. Oct 15 '16 at 14:38
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    Adjust for inflation. 500 a few years back is probably more than 500 today. – Rodrigo de Azevedo Oct 15 '16 at 14:43
  • In order to answer this question, we must know the jurisdiction in which the transaction took place. For instance, in the United States, the laws on maximum (usury) interest , minimum interest, and default interest (rate when you did not discuss/state) vary from state to state. There are also differences depending on the purpose for which the money was intended (e.g. personal/household vs. business). Going beyond these limits can have significant consequences. While the fact that you are friends is significant, any interest rate we suggest must be within legal limits. – Makyen Oct 15 '16 at 15:05
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    Comments are not for extended discussion; this conversation has been moved to chat, and further comments will be purged aggressively. – Ganesh Sittampalam Oct 16 '16 at 17:50
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    I think we are making an assumption its USD 500. A relatively sizeable amount from normal US point of view. If its INR 500, its small [2 cups of Starbucks coffee], if its IDR 500, its rounding change. The context when borrowed is equally important. If borrowed when the friend who lent didn't have enough for himself ... then its worth more. Without much details this is more of opinion. – Dheer Oct 17 '16 at 3:01
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If you didn't expressly discuss terms I would recommend a gift in lieu of interest. Lending between friends can be complicated and change relationships unexpectedly.

Some people are offended by the idea of interest paid between friends. A gift acknowledges the benefit you've received, but doesn't monetize your friendship.

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    In most (but not all) cases you should also include an apology and/or acknowledge that three years was a long time to pay it back. – Lilienthal Oct 15 '16 at 21:15
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    I very much second this. Give the friend the $500 that you borrowed and a gift on top of that to acknowledge the friend's generosity in lending money in the first place. Giving the friend any amount of interest, even if it's more than fair, puts a direct value on the friend's generosity. – Chris Oct 16 '16 at 17:12
  • @Chris - An excellent idea. A bottle of something moderately expensive and alcoholic (or a couple of tickets to a sporting event) are always well received and could serve to improve the friendship, especially if the lender wasn't ever expecting to get that money back. – Valorum Oct 16 '16 at 21:07
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    Don't do this. People hate gifts and love money. I would be infuriated if someone gave me a "gift" like a stupid scarf or something, after waiting years to get my 500 bucks back. – Fattie Oct 16 '16 at 22:01
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    @JoeBlow I'd suggest that the gift should be commensurate with the friendship and size of the loan. I wouldn't want a "stupid scarf" either but my partner collects scarves and she'd be delighted with a really nice, thoughtfully chosen silk scarf that matches the kind of things she wears, as a thankyou gift. Having said that, a gift of money, if the OP knows their friend won't be offended by it, has the benefit of the person receiving it being able to turn it into the exact precise thing they wanted. – Rob Moir Oct 17 '16 at 7:40
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What kind of interest did the two of you agree upon when you borrowed the money?

If you didn't discuss this in advance, what kind of interest do the two of you now agree would be fair?

If your friend is now insisting that interest isn't needed, but you feel you owe something, you will have to decide for yourself what kind of gift would appropriately express your gratitude.

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So if you haven't discussed in advance and if it's your decision to decide the interest now then I think the fair deal would be count yearly compound interest as per the current interest rate with which banks in your company provide personal loans.

  • The primary problem with this is that the amount of interest which banks change on personal loans may not be legal for an individual to charge. For instance, in the USA a federally chartered bank is under federal laws with respect to terms (e.g. maximum interest rate) whereas the individuals are under state laws wrt. terms (usury interest). To know what applies, we must know the jurisdiction in which the individuals conducted the transaction. – Makyen Oct 15 '16 at 14:54
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    The primary problem with this comment is that the friend is not charging interest (or, more precisely, might be charging zero interest). The questioner is just asking how to decide for theirself what a reasonable amount might be, given that it wasn't discussed at the beginning. Was it illegal for the friend to charge zero? – Beanluc Oct 15 '16 at 18:04
  • Instead of the amount a bank would charge for an unsecured loan, I would go less than that, but MORE than he would have gotten for a savings account. – WGroleau Oct 17 '16 at 6:22
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I think in your individual situation, as I have the same issues to look at soon myself, is, how did you leave the situation last when he handed you over the money?

For example; did you promise to repay the loan with interest included, or did you quite simply promise to just ear-mark it in your memory, for when he will ask you for a favor?

If he is expecting interest, I'd pay somewhere between 10 to 20% but remember, if he's a real friend and no interest was discussed, then I'd; a) Return the borrowed funds with a gift of his liking; wrapped and with a "Thank you" card (you can buy Thank you cards from any good card shop), plus, b) I'd make sure you remember it, for when he needs help and don't necessarily wait for his asking, either. When he's noticeably in a predicament of his own kind, offer him sincere help, but be sincere about it and not like; "I gotta do this guy a chore, cos' he helped me once before", cos' if he senses that kinda attitude from you, he might reply, "Look mate, if you don't want to really share your damn time with me, then just take a friggin' hike, somewhere else, Pal".

Something else to take note of, he might want to take challenge to this his own issues alone, for the betterment of his own self confidence, an issue we tackle with till the day we die, but there again, never assume that, cos' we all want help from time to time. Remember, it's his issue and he probably only wants loving hands on it, or a mind of enthusiasm on it, plus, when he lent the money, if he wasn't bothered about the interest and he's sincere, which if he didn't want anything back for it, then he probably is, I'd be humble and associate with him, on a level playing field in future because friendships come few and far between, of that particular breed, anyhow.

Same again, if he agreed to interest because, he might be a sincere and caring person, but just wants to make sure that you, (his friend), will respect his money, so you don't piss the relationship up the wall, because no relationship is ever perfect (in whole, nor in part), thus, appreciate the fact he's not slapping the full interest rates like any loan shark would, thus again, repay him with the interest (only as, previously agreed), with a small "Thank you" card. After all, it wasn't his obligation to lend you the money (he's a tradesman or whatever he does, not your personal bank manager and yet again, you asked him as a friend, so if he treated you more leniently than a customer, then that's an act of kindness in itself, after all, albeit, he might even be your dad.

If this discussion was over £10, I'd pay him back as previously agreed and invite him to a pint, at your local pub.

  • This answer is pretty hard to read and at least needs to be broken up into paragraphs. Does it actually add anything to the existing answers on the question? – Ganesh Sittampalam Oct 16 '16 at 17:52
  • I've attempted to insert vaguely appropriate paragraph breaks. It would benefit from further editing. – keshlam Oct 17 '16 at 2:28
  • TL;DR is appreciated for such a long answer. – TechCrunch Nov 7 '16 at 22:29

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