When trying to decide how to stay financially afloat during trying time, it is worth considering turning to a loved one for a helping hand. However, borrowing money from friends and family should be done with caution. Failing to repay these loans can lead to rifts between you and your loved ones.
There are some key benefits and downsides to borrowing money from family and friends that you should consider prior to approaching the people in your life to borrow money. This article details some of them.
- Borrowing from someone you know is likely to be more flexible and cheaper than seeking a loan from a high street lender.
- Roughly 60% of Americans have lent cash to a loved one before (Bankrate).
- 35% of those who have lent cash to a loved one reported resultant relationship damage (Bankrate).
- If you don’t want to take their cash but need help, you could ask them to act as a guarantor and take out a guarantor loan.
What Are The Benefits Of Borrowing From Friends And Family?
Borrowing from a loved one will often be the cheapest means of borrowing money.
Other means of financing are pricey, explaining why 60% of Americans have helped a loved one with money before. Payday loans are typically accompanied by around 400% APR, and credit cards charge around 16% interest. A loved one will likely not be profit-driven, and their low should bear no-to-low interest.
A family member or friend is likely to offer more flexible terms. While high-street lenders are motivated by receiving their money back alongside the interest you owe, a loved one simply wants to help you. This also applies to allowing you to pay them back when you are able to.
Your credit record will likely go unharmed by taking out a loan from a loved one, while a payday loan could scar it. Given that only 14% of borrowers that take out payday loans can afford to pay them back, it’s common to struggle to repay debt. While late repayments on a high street loan would damage your credit record and likely result in further fees, a loved one is likely to be more patient.
What Are The Downsides Of Borrowing From A Loved One?
Most importantly, 35% of those who have lent money to someone they know have reported their relationship suffering from the loan (Bankrate).
Given this, if you choose to go down the route of asking a loved one for a loan, you should be open and honest about your financial situation, jointly discussing how you plan to make repayments.
Finally, if your loved ones aren’t financially secure, it may be worth considering other options, such as a payday loan or no credit check loan, if your poor credit score is the reason you’re considering this option in the first place.
Why Would I Need To Borrow Money From A Loved One?
You should only borrow money from a loved one if you truly need to. If life throws you costs you weren’t anticipating, this could mean you need help. This could be a medical bill you didn’t see coming, or your pet needs surgery.
In many circumstances, you may find yourself in a pinch due to the timing of these bills in relation to your payday. If this is the case, and payday would be your saving grace, you could consider asking your employer for a cash advance.
How Would I Repay A Loan From A Friend Or Family Member?
If you decide that, yes, you do need a loan and will be taking one from a loved one, you need to have a repayment agenda in mind.
This could be a weekly, monthly, or one off repayment, or whatever suits your needs and your loved one’s preferences. You must both be satisfied with the repayment plan, and this should be written down to prevent future disagreements, and to iron out any disagreements before being granted the money.