‘I am not a loan shark’: I loaned my sister $20K and she repaid me after two years with insane interest: 30%. What do I do?

Dear Quentin,

I loaned my sister $20,000 to help her buy a new home. We did not put any terms in writing, but she said that she would repay the loan in six months. (If it took longer to repay, and that was OK with me.)  

Now she has repaid the loan. She included an insane amount of interest with the repayment: 30%. I told her that I did not want interest, the amount of interest is ridiculously excessive, and I absolutely cannot accept it. 

She argues that it is not too much because it took her over two years to repay the loan. I need help convincing her that it is too much. If I deposit her check in my account and write her a check to return the interest, I know my sister — she won’t deposit my check.  

I’ve tried reasoning with her, and pointed out that depositing the original loan amount of $20,000 in a CD would have yielded $600 not $6,000, but in any case, I didn’t expect any interest.  

She is very stubborn and insists that if I just look at her charts and graphs, then I will be persuaded that she is correct. 

Could you please back me up here?

I am not a loan shark. 

Please don’t tell me to accept her generosity. I cannot. It would be like stealing from my sister and I will not do it.

Just a Sister

Dear Sister,

This is quite different to a recent letter I received about how to calculate the interest rate on a $6,000 loan over 12 years to buy a house. It required all sorts of financial gymnastics to come up with a figure that was fair and yet not overly generous. That letter, however, was written from the perspective of the person who received the loan rather than the lender. You are in a healthier, if still somewhat awkward, position. 

Failing a wire transfer, I have one suggestion. Meet your sister for dinner and, before you order, say there’s something you need to get out of the way. Give her a card with a cashier’s check with the following quote from Polonius in Hamlet, Act 1, Scene 3. (Forgive me, I read it in high school.) “Neither a borrower nor a lender be, For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.”

If it means so much to your sister, say that you will accept the experience of dinner over a check. Tell her she’s paying for it. Deduct the price of dinner from the $6,000, and use the cashier’s check to give her back the remainder. Explain to her that it meant a lot to you to be able to help her, and for you to receive 30% in return would simply spoil the gesture for you. And given that dinner is a gift from her to you, it would furthermore be bad manners to spoil it by arguing.

I’ve heard of relations between friends and relatives souring over a bad debt, but never over an astronomical interest rate bestowed by the borrower. But it once again illustrates the risk of mixing finance and friendship, even with family. Your lack of a notarized loan agreement was an act of faith, but it also shows that lack of clarity at the beginning of the process can lead to complications later on. Let us know how it goes.

Also read: I want to take a life-insurance policy out on my husband. He says ‘hell will freeze over’ before he’s worth more dead than alive

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