How to Model a Personal Loan to Others in Projection Lab

Why You Can't Just Model It as Income

If you've ever lent money to a family member or friend and tried to model it in Projection Lab, you've probably run into a wall. PL doesn't have a native way to handle it, and if you just enter the payments as income, you'll overstate your taxes every single year of the loan.

When someone repays a personal loan, each payment has two parts:

• Return of principal: not taxable. You already paid tax on this money.
• Interest: taxable as ordinary income.

If you lump the whole payment into a single income stream in PL, it taxes everything. You have to split them into two separate streams to get the tax treatment right.

The Three-Piece Setup in Projection Lab

1. The outflow
Model the initial loan as a one-time expense in the year you make it. This reduces your cash balance at origination.

2. Interest income

Create a separate ordinary income stream for the interest only. This is the piece that changes every year and where the Advanced Change Over Time editor comes in.

3. Principal repayments

Create a non-taxable income stream that returns the principal portion each year. This is going to change each year as well so us the Advanced Change Over Time in the same way you did for interest income above. Make sure to use an income type that won't trigger ordinary income tax treatment.

Why the Principal and Interest Changes Every Year

On an amortizing loan, your total payment stays the same each month — but the split between interest and principal shifts over time. Early payments are mostly interest. Later payments are mostly principal. That means your taxable income from the loan is higher in year one and declines every year until the loan is paid off.

You need to enter a specific dollar amount for each year into PL's Advanced Change Over Time table.

How to Get the Numbers

Use the free calculator below to generate your year-by-year interest schedule. Enter your loan amount, interest rate, and term and it will show you how much interest income to report each year, and how much is a non-taxable return of principal.

Personal Loan Interest Calculator

The Annual Interest column is what goes into PL as taxable income each year. The Annual Principal column is your non-taxable return of capital stream.

Entering It in Projection Lab

For the interest income stream:

1. Create a new income item, use Other Income or your preferred ordinary income type
2. Set the starting amount to Year 1 interest from the calculator
3. Open Change Over Time → Advanced
4. Select exact amount mode
5. Enter each year's interest figure from the calculator table
6. Set the end year to match your loan term

Repeat the same process for the principal stream, use a non-taxable income type and enter the Annual Principal figures instead.

The Result

PL now taxes only the true interest income each year, cash flows in correctly, and your net worth projection properly reflects the loan over time. It's a few extra steps, but it's the only way to model this accurately.