Closing out a "Lending Loan" Asset with early payoff

Several years ago I made a large loan to a friend at market interest rate. It's all formalized with a promissory note, as if I am his mortgage banker.

When I made the loan I set up an Asset account as a "Lending Loan" following the procedure I found here on this forum. The transactions are all automated. Once a month my friend's bank automatically sends his payment (principal + interest) into one of my bank accounts. Quicken seamlessly takes care of splitting his total payment into loan payoff (principal) and interest (which is categorized/reported on Schedule B of taxes). The total amount shows up as a deposit in my bank account, and the loan balance is reduced by the principal payment. At the end of the year the interest is included in my Schedule B. This has worked perfectly.

Now my friend is paying off the loan early, midway between normal payment dates. I have the current balance due on the loan after his last payment, and I've manually calculated the prorated interest he owes me to the date of payoff, which I've added together to come up with his total payoff amount.

He has stopped his bank's automated monthly transfer to my bank account. He will write me a check for the total payoff amount. I will deposit it into the same bank account where his automated payments have been going for several years.

I don't see any option for paying off the loan in the Quicken menu.

It seems that I need to stop the reminder and automated transaction, then enter the total deposit amount into my bank account register but split the transaction into two parts, one attributed to the lending loan and one attributed to interest that I will owe tax on.

Would that take the asset (lending loan) balance to zero in Quicken?

Before I start messing with the loan account I am hoping someone can give me some guidance. I wonder if maybe there's something simple that I'm overlooking.

Thanks

Best Answer

  • UKR
    UKR SuperUser ✭✭✭✭✭
    Answer ✓
    Just manually record a deposit transaction in the Checking account, assuming $1000, with these Split lines:
    • transfer to the [Lending loan account]    $900.00  <- that should reduce the loan balance to 0.00
    • interest due     $100.00
    Delete the scheduled reminder for the remaining loan payments.

Answers

  • UKR
    UKR SuperUser ✭✭✭✭✭
    Answer ✓
    Just manually record a deposit transaction in the Checking account, assuming $1000, with these Split lines:
    • transfer to the [Lending loan account]    $900.00  <- that should reduce the loan balance to 0.00
    • interest due     $100.00
    Delete the scheduled reminder for the remaining loan payments.
  • heidick
    heidick Member
    Thank you for the very clear explanation.

    That's what I was going to try doing if no one responded, but I wasn't certain if I would also need to close the loan account since the original term of the loan (and amortization schedule) has payments monthly for 15 years, and there are still 11+ years remaining.

    Once the loan balance goes to zero I wonder if that will take care of itself, or if it will keep thinking payments should be coming in on the original schedule.

    I won't know what things will look like (inside Quicken) until next Monday which is the payoff day, but hopefully it will sort itself out then when I do as you suggested.

    Many thanks for the very prompt response, which gives me much more confidence. :)