Personal Lender Account

steppinwolf7

I made a simple interest personal loan to a friend from one checking account with payments being deposited to a checking account at another bank. The loan is about 80% paid off. However, I just started using Quicken 2020 and retroactively looking at ways of tracking this.

At the simplest level, it looks (to my novice eyes) like I should first create appropriate categories such as "Loan" and "Loan Repayment" for the source and destination accounts. Maybe this is all I need? I like the idea of keeping it simple.

After more reading (including https://www.quicken.com/support/set-loan-which-you-are-lender) I see a dedicated account is the recommended approach. But this leads to three questions:

(1) Is creating a dedicated lender acct worthwhile at this stage (loan almost paid off)?
(2) What's the best way to get old and upcoming transactions into the newly created loan account?
(3) How do I ensure my total net worth remains accurate?

Frankx

Hi @steppinwolf7,

The proper way to record this loan would be to:

A) setup an asset account (actually Quicken calls this an "Other Asset" account) which you could title "Loan Receivable".  When you loaned the money initially, you would have used this account to record the loan transaction.  The rationale is that when you make a loan, you decrease one asset (the cash your bank account) but increase another asset account (the Loan Receivable) for the same amount.  You probably recorded the loan in some expense "category" making it look like an expense.

B ) As you receive payments, the way those payments are recorded depends on whether the loan is "interest bearing" or "without interest".  If it was an interest bearing loan, the payments you receive would be posted partly to the "Loan Receivable" account and partly to Interest Income.  If it were a no interest loan - the entire payment(s) would be applied to "Loan Receivable".

To answer your direct questions:

1) not sure what you mean by "dedicated lender account" but (assuming you are not meaning a new separate bank account - which would not be needed) I think the above steps  answers this question.
2) To get the accounts up-to-date, you can setup the Loan Receivable account (as above) and then just change the categories that any previous entries were posted to conform to my instructions above.
3) If you follow these instructions and assuming you receive full payment, if you charged the borrower interest - your total net worth will not change.  If you did charge interest - your total net worth will increase by the amount of interest you received.

Let me know if you have any follow-up questions.

Frankx

UKR

Just f.y.i., ...

How to create a Lender loan (Money I lend someone)

• From the Menu bar in Quicken click Help / Quicken Help or press the F1 key from anywhere in Quicken
• Search Quicken Help for keyword "lender loan"
• Step by step directions are listed.

Or read https://www.quicken.com/support/set-loan-which-you-are-lender

Frankx

Hi @steppinwolf7,

The proper way to record this loan would be to:

A) setup an asset account (actually Quicken calls this an "Other Asset" account) which you could title "Loan Receivable".  When you loaned the money initially, you would have used this account to record the loan transaction.  The rationale is that when you make a loan, you decrease one asset (the cash your bank account) but increase another asset account (the Loan Receivable) for the same amount.  You probably recorded the loan in some expense "category" making it look like an expense.

B ) As you receive payments, the way those payments are recorded depends on whether the loan is "interest bearing" or "without interest".  If it was an interest bearing loan, the payments you receive would be posted partly to the "Loan Receivable" account and partly to Interest Income.  If it were a no interest loan - the entire payment(s) would be applied to "Loan Receivable".

To answer your direct questions:

1) not sure what you mean by "dedicated lender account" but (assuming you are not meaning a new separate bank account - which would not be needed) I think the above steps  answers this question.
2) To get the accounts up-to-date, you can setup the Loan Receivable account (as above) and then just change the categories that any previous entries were posted to conform to my instructions above.
3) If you follow these instructions and assuming you receive full payment, if you charged the borrower interest - your total net worth will not change.  If you did charge interest - your total net worth will increase by the amount of interest you received.

Let me know if you have any follow-up questions.

Frankx

steppinwolf7

FYI: For (1) I meant the asset acct in Quicken (now that I have an idea what to call it). And yes, as indicated, this will be an interest bearing loan. Thanks for walking me through some of the details.

Frankx

@steppinwolf7,

Glad I was able to help.  Take care & stay safe.

Frankx

UKR

Just f.y.i., ...

How to create a Lender loan (Money I lend someone)

• From the Menu bar in Quicken click Help / Quicken Help or press the F1 key from anywhere in Quicken
• Search Quicken Help for keyword "lender loan"
• Step by step directions are listed.

Or read https://www.quicken.com/support/set-loan-which-you-are-lender

q_lurker

steppinwolf7 said:

I made a simple interest personal loan to a friend from one checking account with payments being deposited to a checking account at another bank. The loan is about 80% paid off. However, I just started using Quicken 2020 and retroactively looking at ways of tracking this.

At the simplest level, it looks (to my novice eyes) like I should first create appropriate categories such as "Loan" and "Loan Repayment" for the source and destination accounts. Maybe this is all I need? I like the idea of keeping it simple.

After more reading (including https://www.quicken.com/support/set-loan-which-you-are-lender) I see a dedicated account is the recommended approach. But this leads to three questions:

(1) Is creating a dedicated lender acct worthwhile at this stage (loan almost paid off)?
(2) What's the best way to get old and upcoming transactions into the newly created loan account?
(3) How do I ensure my total net worth remains accurate?

1)  I don't see it being a question of how much has been paid off.  More to the point, how much longer is this loan going to be active.  A month or two is much different that 18 months.  Real answer is -- your personal choice.  How important is it to you for question 3 to be precisely accurate?

2)  Old transactions?  Your choice.  You can certainly initialize the loan for the remaining 20% of principle and go forward from there.  If you want to track the old payments, you can do that also.  In that second case, you'll just want to manage the Opening Balance values for any affected account. 

New transactions?  If I recall correctly, Quicken does not handle a simple interest loan (someone will likely correct me on that if I am wrong; this is not a strong area for me.)  If I'm right, I think you will be needing to make manual transaction entries with split category assignments to [Loan account] principle and "Loan Interest" income category.  As you enter those transactions in your checking account, the [Loan account] asset value will decrease with each payment credited.

3)  Your net worth will remain as accurate as the data you feed into the program.  Today, you have an asset account where they owe you $1000.  Tomorrow, you record the split as a deposit into your checking account of $100 -- $90 reduces the loan to $910, the other $10 is credited to you as "Loan Interest".  Your net worth increased by $10 as a result.