Despite the lender explicitly loaning me something interest-free and with no firm repayment date, I would like to offer a fair interest rate when I am able to repay them in the future. I'd like your help in figuring out what that rate would be, and your confirmation that I am applying the concept of compound interest correctly.
posted by anonymous to Work & Money (14 answers total) 1 user marked this as a favorite
My parents have loaned me money throughout this recession. The one occasion my mother and I spoke of it, she said (I paraphrase here, but accurately so) that although it wasn't an outright gift, she didn't want me to worry about paying them back until I had taken care of any other financial priorities (including any credit card debt), and it was also said that there wouldn't be interest.
I'd like to, at the very least, out of a sense of basic decency, when I am ready to pay them back, offer them back what I owe them plus a decent interest rate. Problem is that I have no idea how to figure that out: I don't know how, absent their offer, to determine what a fair, or average, interest rate would be. Is there some sort of market statistic I can consult? My credit card companies are not good models to look at for answers to this question.
And how would I apply it? I've heard the word "compounded" before, but I'm not entirely sure how to apply it when I don't have the credit card companies doing the math for me.
Is it ... just to pluck figures completely out of the air, say it's a 7% interest rate (compounded monthly, right?), and the amount borrowed $100. (Much more than that has been lent.) Does that mean that the first month would be $107, the next month would be $114.49, then $122.51, $131.09, $140.27, etc.? In other words, multiplying your balance each month by 1.xx, where xx is the interest rate in decimal form?
Since I'm anonymous and thus can't just wait to address this until I see whether or not it develops, I'll just ask ahead of time that the thread not derail with answers saying that I don't need to do this and should just accept it being no interest. I understand the sentiment behind such comments, and if they adamantly refuse, I am not going to get into a "fight" with them at that future time about whether they take the interest or not. In fact, I expect that they are going to refuse. If they don't refuse, I'll be glad, but the thing is, I think it's the right thing to do, and when I am able to, this is how I want to first present things. It seems the menschy way to approach this.
Asked anonymously because, honestly, I'm embarrassed as all fuck that I'm the age I am and borrowing from my parents (despite having had savings, etc.). I know I'm not alone in doing so, but, honestly, I really don't want my name publicly associated with this circumstance.