Loaning money to family members has its attractions and drawbacks. One advantage is that interest payments go to the family member, not a bank.
But a serious downside is risk: the average default rate on interpersonal loans is 14 percent, fourteen times higher than the 1 percent loss rate of bank loans. But the default rates fall dramatically if the loan is professionally administered.
That's where CircleLending comes in. The Waltham, Massachusetts-based company provides a full range of services for managing financial transactions between private parties. CircleLending handles every aspect of the lending process, from structuring the loan repayment schedule to drawing up formal promissory notes to collecting payments each month. The firm also recently introduced a family mortgage similar to a reverse mortgage but without the costs and restrictions.
The company, launched in 2000, also provides ancillary services such as year-end tax statements, mortgage recording, escrow administration, and web-enabled payment tracking. CircleLending's experience in facilitating and servicing private loans between relatives and friends lowers the default rate on private loans to less than 5 percent, says the company.
CircleLending can even allow private borrowers to build their credit rating by reporting the payment history on the private loan to credit reporting agencies like Equifax.
In the case of default, CircleLending gives private lenders the rights and capabilities normally reserved for lending institutions, such as collections, credit reporting, and loan restructuring.
CircleLending charges a one-time setup fee and, depending on service chosen, sometimes a per-payment fee.
CircleLending's Web site can be found at www.circlelending.com
For more on loaning money to family members, click here.
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