Setting up a private loan
A private loan is money lent by someone you know rather than a bank. Agreeing the amount, interest rate, repayment schedule and what happens if a payment is missed, and putting it in writing, helps avoid misunderstandings later.
If you lend money and charge interest, the interest you receive may count as taxable income.
Worked example
Lending £5,000 at 3% over 3 years means monthly repayments of £145.41, £5,234.62 in total. At 0%, the same loan would be £138.89 a month.
Interest is worked out monthly at one twelfth of the annual rate. Lenders may calculate interest differently (some charge it daily), so your actual payments can differ slightly.
Protecting both sides
A written agreement signed by both people makes clear that it's a loan, not a gift. For larger sums, consider asking a solicitor to draw it up.
Inputs for the private loan calculator
Amount to borrow
The amount being lent.
Interest rate (per year)
The rate you've agreed. Enter 0 for an interest-free loan.
Term
How many years you'll repay over.
CALCULATOR QUESTIONS
Private loan calculator questions
Should a family loan be in writing?
It's a good idea. A simple written agreement records the amount, repayments and that it's a loan rather than a gift.
Do I have to charge interest?
No. Many family loans are interest-free. Enter 0% to see equal repayments with no interest.
Is interest on a private loan taxable?
Interest the lender receives may be taxable income. Check your position with HMRC or an accountant.
What if repayments are missed?
Agree what happens in advance and write it into the agreement.