How to set up a loan I make to someone else

PAT

On Quicken for Mac does anyone have a suggestion how best to set up and track a personal loan I make to someone else? Thanks.

PAT

Thank you. That worked and is straight forward to track.

jacobs

@PAT  Quicken doesn't automate this type of loan, but it's easy to accomplish manually.

First, create an Asset account as a manual account not tied to a financial institution. (Click "My bank is not in the list" at the bottom of the Add Asset Account screen, and then click "Add Manual Account".) The Asset account will always show you the balance remaining on the loan -- the amount still owed to you.

Next, you need to create the amount of the loan. Typically, if you are just paying out the money, you would enter an opening balance of zero when you create the account. Then, you'd enter a transaction to establish the loan and the payment of cash:
    Payee: "Loan to XYZ"
    Increase: Amount paid out
    Category: "Transfer:[your checking/savings account]"
This will create the loan amount as the balance of this asset account, and put the withdrawal of cash from whatever account you paid it from.

Alternatively, if this is an existing loan and you don't want to go back in time to deal with the money you lent, you can just enter the current amount of the loan as the opening balance of the asset account -- establishing the loan but not the payment of the funds.

Now here's the manual part: you need to calculate the amount of the payments. If this is a no-interest loan, then it's the balance divided by the number of months it is to be repaid over. If you're receiving interest, you need to calculate the interest amount. There are lots of interest/amortization calculators you can find with a quick Google search, where you can input the balance, number of payments and interest rate, and will generate a schedule showing the breakdown of interest and principal for each payment. Print this schedule, as you'l need to use it to update the interest versus principal each month.

Finally, you create a scheduled transaction in Quicken for this monthly payment. Each payment you receive will be a deposit to your checking account, and that transaction will have a split, with a portion categorized to Interest Income and a portion categorized as a Transfer to the loan account. Set the schedule of the transaction for the frequency and duration of your loan, and it will pop up every month (or week or quarter or whatever).

As each payment occurs, you'll click on the next scheduled transaction and mark it Paid. And then, if you're doing amortized interest payments on a declining balance, you'll need to double-click on the transaction and update the split of interest versus principal payment according to the schedule you previously generated.

That might sound like a lot to do, but honestly it's pretty straightforward. Once you have the account create, the starting balance set, and the scheduled transaction, it takes only a few seconds each month to adjust the interest/principal split. 

PAT

Thank you. That worked and is straight forward to track.

QuickThink

If no payment is made for one month, or two, or three, and there is a late penalty each month for not making a payment, how is that handled? The unpaid interest for 1st missed month should increase the balance due, and therefore, the interest charged for 2nd missed month should be on the new balance, plus the late fee. Can quicken be set up to do all that automatically? or do you have to manually increase balance by the unpaid interest?

jacobs

@QuickThink  As noted above, Quicken does not automate lender loans. You mention several facets: are you charging an actual late fee when a payment is missed? Are you charging interest on the late payment and expecting it to be paid in addition to the current month's scheduled payment? Are you extending the length of the loan, or re-calculating the remaining monthly payments to pay it off in the original total time period? Whatever the case, you will need to add and fees or interest to the account balance, and then re-run the amortization schedule -- just as you did at the start of the loan -- for the revised balance and remaining term.