Personal Loan from Friend

[dmoltrup]

I am in the process of borrowing $30,000 from a friend. I have printed an amortization schedule and I believe we have agreed on 15% interest over five years. I am not one to spend more than I have to, so I plan on getting the loan paid off early. What would be the procedure for calculating any extra payments I make? I would expect the extra payments to affect the principal at the time of payment, drastically reducing the interest. I think he would just end the loan early to preserve the interest that has been loaded in first, according to the amortization schedule. Since it is a "friendly" agreement, it wouldn't be subject to the banking laws and standard practices. I want to draw up in our contract with verbiage containing this situation and how it would be calculated. What is the simple way for two individuals with a calculator, or Excel to figure out the affect of extra payments on the principal? There are thousands of websites that show the overall affect while CREATING the amortization, but how do I calculate the real-time affect on the fly, months and years into the actual payments?

[Beads]

To be honest, I've never heard of anything like this, but I think unless you both are clear and agree on everything and have an official agreement drawn up, it has the potential to end in tears.

I think I'd visit an independent financial advisor - together - to get their view on interest calcultions etc - as it'll be a neutral view.

[PrinceRainie]

As an IFA myself...I would not welcome such queries being passed into my office.!!!! I really could not be bothered to get involved in such a query!! Especially seing as I had nothing to do with setting up the loan in the first place.
I would suggest you discuss it further with your lender and seek a mutual beneficial solution as they will probably prefer you to pay the loan off quicker!!
Am I right in saying that the Fed rate is 4.75%????? Not much of a mate if he is charging you over 3 times the base rate!!!!!!!