The Wall Street Journal had a great article on How to Lend Money to your Kids. With the holidays approaching and adult children coming home to celebrate, I thought this article was worth you checking out. Here are some highlights:
Recently, the banks have cut credit to all borrowers - with good or bad credit alike - but if your young adults are in need of a loan you may want to consider lending them the money. First rule, go with a written contract between you and your children. Have an attorney draw up the details on the intra-family loan - loan amount, term of loan, interest rate and repayment schedule. Consider having an escrow company to service the loan - they will act as the go between for the repayments. As the lender, you will owe income tax on the interest and your adult child will want to be able to deduct the interest on their taxes if they using the loan for their house (mortgage). An escrow company can prepare these tax documents for you.
While both you and your adult child can benefit from a intra-family loan, if it's not right for your situation, the WSJ mentioned some websites that match borrowers and lenders: Prosper and Lending Club.
Helping parents teach their children to become financially responsible
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