How to setup a lender loan with 2 years of defered payments

DoctorBrown

I have made a loan to a family member's business. The terms include no payments for 2 years. Then accelerated payments for the next 2 years. How can I setup a loan in Quicken Windows to track this? I have created an asset account, converted it to a loan, but I don't see anyway to manage the payments the way I want.
Any Ideas?

Frankx

Hi @DoctorBrown,

Some additional details will be helpful.

You said that you "created an asset account, converted it to a loan".  What did you do to "convert" it?  Was it just changing the name of the account, or something more?

Loans with skipped payments are not your "run of the mill" loans and it will take some effort to get it setup in Quicken.  These accounts have "negative amortization for the period when there are no payments and then once payments begin they are pretty straight-forward.  There are probably calculation tools available on the web that you may be able to use to track this loan.  But basically, for the first two years you should be increasing the loan principal amount in Quicken for the additional interest that is accrued on a monthly basis.  At the end of the two year period, normal amortization will be applied to the increased principal amount (i.e. - the original principal plus the additional accrued interest for the two year period) for the payoff period.

Obviously, Quicken won't help you with the first two year portion, but once that is over, you should be able to use Quicken to do the amortization for the full payoff period.

Hopefully this will provide some direction.

Frankx

DoctorBrown

Yes, I could have provided more detail in my discussion. To create the Q-account I was following the instructions found in Help. What I did:: Tools > Add Account > + Other Assets & Liabilities > Assets. Once the Asset account is created there is an option in the Gear (Actions) menu to 'Convert to a lending loan'.

I already understand how negative amortization works. I have an Excel spreadsheet that completely defines the amortization schedule, including the deferred payments. I'm seeking help on how to get a Quicken account to do the same. And I'm very familiar with other more normal Quicken loans. I even know how to setup a reverse mortgage loan. But it seems Quicken doesn't have a way of doing a neg amortization loan.

If someone has an idea how to do that, I'm all ears.

NotACPA

Does the Deferred interest ADD to the outstanding balance of the loan ... or is it simply skipped ... or something else?

Tom Young

"But it seems Quicken doesn't have a way of doing a neg amortization loan."

I would say you're correct if you're referring to Quicken calculating and making the entries.  Quicken will, of course, allow you to make the calculations and make the entries.

With no payments for a period of time you book interest income (for GAAP, not tax purposes) with an increase in the loan amount. 

I'm not exactly sure what "accelerated payments" mean.  Quicken can handle a normally amortizing loan and it can handle a loan with changes in interest rates, but if accelerated payments means something along the line of increasing payments each month, then you get to calculate those payments and make them manually, too.

Frankx

Hi @DoctorBrown"

You said "But it seems Quicken doesn't have a way of doing a neg amortization loan." - and that is correct, which is what I believe that I conveyed to you above in my reply to your initial post. 

I am not sure what you expect from a consumer program designed for the masses that has a median retail price of approx. $66.00 a year but from my experience I can say that there is no program that has the capability to create and track a negative amortization loan and also do all the other things that Quicken does for anywhere near that price.  You have to agree that these types of loans are not the norm, and therefore I believe that you are expecting too much from Quicken if you believe this should be one of standard features.

All that being said, I think that I've honestly shown you the path and steps that you need to take in Quicken to accomplish what you want to do.  I hope that you are successful in your efforts of either finding another program that will provide an easier solution, or following the guidance we've tried to provide here.

Good luck!

Frankx

DoctorBrown

@Frankx, Thank you for all of your guidance. After spending more time working on this. I have a fuller understanding of Quicken in this scenario. When I converted the Asset account to a Lender Loan, one of the prompts was to specify the first payment. I set it to 2 years in the future. Then I simulated future months by changing the Date on my computer (on a Virtual Machine) to future dates. Quicken did calculate the correct interest accumulated and increase balance of the loan as a result of the deferred payments. So Quicken is able to handle this type of loan.

@Tom Young, What I meant by "accelerated payments" is the borrower is paying extra principle each month to pay off the loan in 2 years.