What is a fair rate to charge a friend for a personal loan?

What is a fair rate to charge a friend for a personal loan?
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#1

I have friends that don’t have a good credit rating. However, I know they will be good for a loan I would make to them. What is a typical rate on unsecured loans when someone’s credit rating is not good. I don’t want to overcharge them, only what is a fair rate


#2

Lending to friends and family can be tricky.  There is a reason why your friends have poor credit ratings.  So think carefully before making the loan. My philosophy is to not lend to a friend more than you can afford to give them as a gift, or more than you can afford to lose.  That being said, I would charge a friend an interest rate of 6-10%.  The average creditor would charge them much more than that, depending on what kind of loan it is and if there is any collateral or not.  Just charge more than the interest you would earn if you kept the money where it is right now. That's just my opinion.  I would not charge a friend a high rate of interest. 


#3

Aside from the standard cautionary guidance about how loaning money to friends has ruined many a friendship, if you wish to gain pracitical insight into how much to charge, you may wish to use the rates charged by peer-to-peer lending sites (e.g., Lending Club and Prosper.com ) as a guide.  On their sites, both Lending Club and Prosper indicate that personal loan rates range from 6.68% to as much as 36%(!) depending upon credit-worthiness. 

It is also worth mentioning that there are a few P2P sites available that facilitate and formalize loans between friends and family members.  For more on this, see the following Wall Street Journal article -

How to Borrow from Family and Friends  (Wall Street Journal)

Hope this helps.

Aloha,

JR



#4

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