Credit

August 2017

Formalising “the bank of mum and dad”

Overview

The informal loans market in Australia processes almost $20 billion per year, according to the latest figures available. However, the convenience and low cost of borrowing from family and friends also carries the potential for conflict and disharmony.

Loan management platforms have emerged which seek to prevent potential ill will arising from lending to family and friends by semi-formalising the process through features such as loan agreements, robust documentation, reminder messages and loan recalculations.

Thorough documentation of transactions, in particular, can serve to circumvent arguments over loans versus gifts. The global experience of loan management platforms has also seen them used as tools to educate children on the process of formal lending.

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Learning objectives

After reading this article you should be able to:

  • Discuss the development of the informal loans market
  • Describe the procedure for dealing with a loan default when using a loan management platform
  • Outline the advantages of loan management platforms.

Knowledge areas and accreditation

Knowledge area: Credit and Mortgage Broking (45 minutes/0.75 points).

FPA CPD points 0.75 Dimension: Capability (FPA 009289).

AFA CPD points 0.75 (AFA 01022009).

CPA Australia CPD points 0.75 (CPA 000325).

FBAA CPD points 0.75.

TASA CPE (45 minutes/0.75 points).

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