Loan with no payments made. How to properly track. Redux

Question

This is a re-examination of my question posted in July 2024. I made a loan to a family member and they are missing payments.

Loan with no payments made. How to properly track

This is coming up now because The original suggestion did not work for me and I didn't pursue it until now. I'm not sure if I did something incorrectly, or not. What is the proper transactions to enter to make the loan track and accrue interest correctly?

When I Skip the payment as suggested, no transaction is entered into the Loan account.

Boatnmaniac · Answer

Ah, so it appears you want to capitalize the past due interest.  While is it a fairly common practice to capitalize past due interest it is most commonly applied to student loans (although I understand that a couple of years ago the Gov't mostly stopped allowing this practice for student loans), mortgages and commercial loans.  And it is primarily implemented by businesses who are seeking to increase their loan margins but they also need to show that capitalizing past due interest is in the borrowers best interest.

The general rule per US Code is that capitalization of interest should generally be done as a last resort because of the risk that it will increase the hardship on the borrower..  Instead lenders are encouraged to work out new terms with the borrower that will help them to repay their debt obligations, including extending the term of the loan thereby lowering the dollar amount of the payments, reducing the interest rate and when appropriate some debt forgiveness if the borrower complies with the new terms.

So, yes, I suppose capitalizing past due interest is something that can be done but only you and he can determine if that is the best path to take.  I'm not judging and I'm not looking for a reply to this.  Just food for thought.

I really haven't looked into what Quicken's capabilities are regarding past due interest capitalization but I'll have to do that some time.  Given that capitalization of past due interest is generally something done by businesses and Quicken is primarily a personal financial planning software it would not surprise me if Quicken did not build this capability into the software.  But maybe someone will be able to educate both of us on this.

DoctorBrown · Answer

Thanks for all the help you have provided.

Yesterday, I attempted to create a new Lender Loan per the article. I entered the start date in the past as this is a loan made in the past. Quicken did not calculate and add to the balance of the loan the accrued interest from the start of the loan until the 1st payment start date, one years later. It just carried the original balance forward. All other visible indications are that this loan operates just like the loan I created at the time I initiated the loan.

I think there should be transactions or other mechanism to accrue interest to the loan balance because if a payment is not made, the unpaid interest increases the principle loan balance. If a payment is made, the appropriate interest is part of the payment.

That happened on my original loan account up to the time the payments were to start. I don't remember if I caused them or they occurred automatically. Probably the former.

I have figured out an unexpected way to get those interest accruals to occur. In my original account, in which the interest had accrued, I reset the Due Next On date in the Loan Reminder to the first due payment. The To Account was set to a checking account in the Separate section of Quickens account list. Then in the checking account I clicked Enter in the Reminders pane. I delete the principle entries from the Split and left the interest portion calculated by Quicken and entered that in the checking account.

A deposit transaction was entered in the checking account for the interest. Then I Moved the transaction to the Loan account, and all looks normal. Quicken correctly added the interest to the Principle balance and recalculated the payments.

The only strange effect occurred with the Reminder. When the Reminder was entered, the next due date was incremented as expected, but when I moved the transaction to the loan account, it reverted to the previous date. Strange.

Boatnmaniac · Answer

https://community.quicken.com/discussion/comment/20522688#Comment_20522688

Setting up a Lending Loan is not intuitive in Quicken.  I've long hoped for the process to set up a Lending Loan be made more intuitive.  The process itself is not difficult but it is not readily apparent how to get there.

A standard loan account is not what you need.  You need to set up an Asset account and then convert it to a lending loan.  This Help article spells out the process for setting up a loan where you are the lender.:

https://info.quicken.com/win/how-do-i-set-up-a-loan-for-which-i-am-the-lender

Once the Lending Loan is set up it seems to work quite well, even managing skipped payments quite well.  But as mentioned in my response to your original post on this subject and by @UKR skipping payments will not enter any transactions into the register, nor should it because the payment transaction is skipped.  Instead, Quicken then adjusts the future payment schedule (including interest amortization) to account for that.

What kind of transaction do you think needs to be entered into the register for skipped payments and why?