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Jim Reilly
Jim Reilly, Attorney
Category: Legal
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Experience:  California lawyer since 1976.
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I live in Colorado. We took out two loans from my sister and

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I live in Colorado. We took out two loans from my sister and brother in law, one for $40,000 and the other for $30,000. They were no interest loans, as we were on good terms with the family at that time, and they were used to help buy a house and for medical bills. No written agreement was made: it was strictly verbal. Times have changed, and they now want to charge interest. We have repaid $10000 of the loan, and will continue to pay off the remainder.   We do not dispute the existence or the amount, but since they are likely capable of suing, we are wondering if we should fear this.
Submitted: 5 years ago.
Category: Legal
Expert:  Jim Reilly replied 5 years ago.
If your agreement at the time of each loan was that they would be no interest loans, you are under no obligation to pay interest. As long as you continue to repay the loans in accordance with the agreement, they will have no legal basis upon which to sue (though, of course, they could do so anyway, but would then have to prove that you were in violation of the terms of the agreement to actually win).

On the other hand, a lawsuit could prove expensive for both sides and you would likely incur more in filing fees, costs and attornies fees than you would spend if your reached some agreement to pay a reasonable interest rate. Perhaps you should consider drawing up a written agreement which memorializes the terms of the verbal agreement, but adds a modest interest rate -- say something like whatever the local banks are paying for savings accounts.

Nationally, savings interest rates vary from about 1% to a maximum of slightly more than 4%. The highest I could find in a quick check of Colorado interest rates was 3.7%. On a balance of $60,000, interest at 3.7% would start at $185/month and go down as the balance is reduced. At 2.5%, interest would start at $125/month.

If paying interest is out of the question, you should make every effort to pay this off as quickly as possible. As I'm sure you know, now is not a good time to be attempting to refinance a home, but that will likely turn around again at some point, which might enable you to refinance and pay off these loans all at once.

Good luck resolving this difficult family situation.
Jim Reilly, Attorney
Category: Legal
Satisfied Customers: 1801
Experience: California lawyer since 1976.
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