Do You Borrow From Friends And Family?
You might find yourself in a difficult financial situation and are trying to figure out how to get the money you need. You might consider asking your family or friends for a loan. Is this a good idea?
Like most finance-related questions, the answer will depend on your individual situation.
The following factors can help you decide whether borrowing money from family and friends is a good idea.
- How much loaning money do you need to borrow?
- How long would it take for it to be paid back?
- How certain are you that it is possible to repay it, according to the agreement?
We’ll be discussing related topics and sharing the benefits and drawbacks of borrowing from friends and family in this post. If borrowing from your loved ones is the best option, we have some suggestions on how to make arrangements to repay the money.
We’ll also provide information about personal loans with low interest and no fees.
According to financial experts, there are several advantages to borrowing money from a loved one rather than taking out a personal loan from a financial institution. For starters, borrowing rates are quite cheap (or there may be no loan terms at all).
Think about the consequences
When dealing with a family loan, both the borrower and the lender must adhere to tax consequences. If they provide a below-market rate, lenders may be required to pay interest on both earned and unearned revenue from the loan. Borrowers may be required to return the too much debt in full or claim the canceled debt as income unless an exemption exists.
It’s important that you consider the consequences before borrowing money from someone you love. Borrowing money from a family member or friend could cause strain to the relationship.
In a 2018 Bank of America report, more than half of respondents said that they have seen a friendship end due to money owed.
Not surprisingly, 77% of Americans said that borrowing can hurt friendships. 43% of Americans also responded to the survey, saying that they would end a friendship if the person doesn’t pay the loan money.
After sharing this caution, we will now provide information on the advantages and disadvantages of borrowing from family members and friends.
Benefits of borrowing money from friends and family
Let’s first assume that you only need $200 for car repairs. It may be quicker and easier to explain the situation to someone you trust than to borrow from a lender.
Let’s suppose that the amount you need is higher or that the repayment period is longer. What are the benefits of borrowing from family or friends?
Your credit score isn’t affected
It’s unlikely that your credit score plays a role in lending you money. However, friends and family might be less likely to lend you money if you have a history of not repaying loans as agreed upon.
The loan is affordable
You may be eligible for a lower interest rate. You may even be able to pay the lent money back with no charge interest.
It may be possible to negotiate more flexible terms with your friend or family member. They may even be happy if you pay the money back by a specific date.
It may also be acceptable to pay a portion of the lending money on a non-specified date, such as January or February. This will depend on your and your friend’s individual circumstances.
Disadvantages of borrowing money from friends and family
It’s a business transaction when you borrow money from a bank, credit union, or another lender. You submit an application and they will follow the guidelines.
The situation can become more complicated if you borrow money from friends and family. How do you start the conversation? This alone can be difficult.
The person will want to know the reason you are asking for the money. This may be a difficult conversation or not. It is possible to tell a loved one a situation you don’t want to discuss, refuse to answer, or give a partial disclosure.
A friend or relative might understand your situation and lend you $1,000. However, they may get annoyed if you take them out for dinner next week. They might feel that you should have used the money to pay back the family loan or rebuild your savings.
This means that you might need to justify your actions even if you’re making the payments as agreed.
Other disadvantages include:
Conflict can result if you don’t pay your agreed-upon payments. This can cause conflict that can damage relationships. You might also find that your friend who borrowed money may need a cash injection. In this case, you could request that they accelerate their payments. Even if you make payments in accordance with your original agreement, it is possible to have hard feelings if you are unable to do so.
Another potential source of conflict is another family member or friend who might make incorrect assumptions and cause dissension. This could also be a problem even if you do everything you promised.
You might be turned down
Before we move on to the next topic, here’s the last thought. Let’s suppose you ask a friend to lend money. They say no. This could make you feel angry and resentful.
Consider these things when borrowing from friends and family members
Forbes has an article on how to clearly communicate why you want to borrow money from your loved ones.
This article suggests that you create a brief presentation to outline those points and show potential lenders your seriousness about repaying the loan.
US News and World Report explain that borrowing money from friends or family doesn’t need to be difficult. They also recommend that you create a repayment plan and agree on the details that are important. Here are some examples:
- agreeing on a repayment date and/or payment date
- Make sure to sign the agreement in writing so that expectations are clearly defined
- Creating a Plan B in the event of unexpected problems with repayment
- Communication throughout the entire process can be crucial. You should be open about any late payments as a borrower. It shouldn’t be surprising to the lender.
Alternatives to borrowing from friends and family
Consider a personal loan
Sometimes borrowing money from family and friends is not worth the risk. This arrangement could cause tension. You may want a simpler loan option, such as an unsecured personal loan.
Benefits of personal loans
This type of loan can help you get the cash you need quickly. There are many online lenders who can process your request in minutes and have the funds within days.
Flexible loan repayments
Flexible repayment terms are often available for unsecured personal loans.
You may be able to get lower interest rates if you have good credit and a steady income. Additionally, the loan is unsecured so you don’t need an asset as security.
Fixed interest rates on some unsecured personal loans may make it easier for you to include your payments in your budget. They won’t fluctuate, so they don’t have to change.
These loans can be used for many purposes, including consolidating credit card debt and funding home renovations and repairs, or paying unexpected medical expenses.
Oak Park Financial offers an Unsecured Personal Loan
Oak Park Financial makes it easy to apply for an unsecured personal loan. We offer low rates with no fees. There are no origination fees, prepayment penalties, or late fees.
You may also be eligible to temporarily suspend unemployment protection payments if your job is lost. We’ll even help to find you a new job!
Our loan consultants are available to help you with your application. You can also find your rate within two minutes.
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