Sunday, February 05, 2006

Why lend money to friends or family?

There are lots of reasons people borrow and lend money to friends and family. Here are the top reasons for personal loans made on LoanBack:
  1. To pay off other loans
  2. Working capital for existing business
  3. Real estate purchase
  4. Car purchase
  5. Startup captial for new business
  6. Downpayment on a house
  7. Education expenses
The average loan amount that we see is $26,972 with an average interest rate of about 5%.

Considering the high levels of personal debt in the US, I'm glad to know that some of us are doing something about it. Borrowing money to pay off other loans is a smart thing to do, especially if you can find somebody to lend you money @ 5%!

Let's take an example scenario to guage the impact of doing so...

Let's say you have $10,000 in credit card debt @ 18% and $10,000 left on your car loan @ 8%. Suppose your "plan" is to become debt free in 5 years. If you keep your debt as it is you'd have to pay $456.70 every month for 60 months to pull it off.

Now, let's say you approach your brother for a loan of $15,000 @ 5%. He's happy to help you out and he gets a better rate or return than his current money market account. You end up paying your brother $377.42 each month and save a total of $4,756 over the course of 5 years! Not a bad chunk of change to pocket and oh yeah, your brother earns $2,645 in interest. Sounds like a win-win to me.



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