Borrowing money from a trustworthy friend or family member can be a huge relief in difficult situations. Even those who manage their money very well may find themselves in need of money urgently that they don’t have at that given time.
Having relationships with family and friends that have a strong sense of mutual trust can come in handy when it comes to borrowing money.
However, borrowing money from friends and family comes with risks, too.
Before you borrow money from someone you know, you should carefully evaluate whether it would endanger your relationship if you can’t pay it back in full or if it takes more time to return than you anticipated.
This kind of borrowing can be the best choice if you have full confidence in paying back the money in a short frame of time, without any issues.
Should I borrow from family or friends?
Asking friends or family for a loan can be alluring. However, you must carefully consider your ability to return it and handle what could happen if you are unable to.
Borrowing money from relatives and friends can undoubtedly be advantageous if you need quick cash to pay for an unexpected need like a car repair, an emergency, or a medical bill.
However, it’s essential to understand that there are consequences to borrowing money from family and friends, and it’s crucial to avoid ruining or destroying relationships because of money problems.
|Pros of Borrowing from Friends and Family||Cons of Borrowing from Friends and Family|
|Flexible Options: One advantage of borrowing from family and friends is that you do not have to go through the equivalent financial hoops to get accepted by a bank or lender.||Relationships are damaged: The most crucial reason why borrowing money from friends and family may not be a good idea is that it might have a negative impact on your relationships.|
|Lower Interest Rates: Another advantage of borrowing money from friends and relatives is that you usually get a lower interest rate or none.||Lack of Clarity: If family members and friends who are lenders and borrowers have differing expectations, the lack of understanding may be detrimental.|
|More Financial Flexibility: The flexibility that relatives and friends may provide is one of the most significant reasons why it can be preferable to borrow from them rather than a payday loan or other type of cash advance.||Tax Concerns: Lenders could overlook how a loan will affect their tax liability in their haste to assist a family member or loved one in need.|
Borrowing from family or friends can be a great option in times of need, but it comes with its risks, too.
What’s the best way to borrow money from family or friends?
Borrowing is not easy, and a lack of clarity can drag you into more debt and relationship problems with your loved ones.
Here are some steps you could employ to make sure everything’s intact!
Calculate how much you require.
The first step is calculating how much you’ll need before approaching your friends or relatives for a loan. The term “need” rather than “desire” is crucial in this context.
Decide who you should borrow from.
Consider the individuals you know who could be able to help you out financially. Choose the person in your close social circle who is the most financially stable and well-off and has a strong enough relationship with you.
A retired parent, for instance, might be on a government pension or be forced to withdraw funds from a taxable account to provide you with the help you require.
Make a written agreement.
Getting anything in writing that expressly states the amount that will be reimbursed and when is a smart idea.
Keeping track of when payments are made will help you understand exactly how much is still owed. You can be safeguarded by having a written agreement in place.
Once you’ve decided on your repayment terms, set up a direct debit or monthly transfer.
You may schedule recurring payments to another checking account with most banks.
Set up a monthly transfer from your bank account to the bank account of your lender as soon as your payback period begins.
This will make the repayment process automatic.
What can I do if I can’t pay back my family or friends?
It’s always stressful when you can’t afford to pay back what you owe. However, if you’re leaving a beloved one penniless, it can be far worse and could sour your bond with them.
This is why making a budget, and a new plan for paying them back as soon as you have trouble doing so is essential. Make sure to inform the individual you borrowed from as promptly as possible about the situation.
In case they also really need the money back urgently, you should consider taking out a loan from a short-term lender to pay back your loved one. You should avoid damaging your relationships above all.
What are the alternatives if I need to borrow money now?
There are several alternative methods for obtaining a loan if you don’t want to risk compromising your relationships by turning to relatives or friends:
If you’re qualified and eligible for a payday loan (this is the loan type that’s easiest to qualify for), this is an option for you. If you can safely borrow from family or friends, that is more advantageous in terms of cost and flexibility of borrowing, however.
Credit unions, which are non-profit institutions, provide loans at extremely cheap interest rates with no repercussions if you can’t pay them back.
You can borrow money using your car as collateral through title loans. During the loan term, you give the lender part of the title to the car. This lets you borrow quite large amounts at very low-interest rates.