There are both advantages and disadvantages of borrowing from friends and family when in need of money. The primary benefit is that it is usually interest-free, but in return it can become a source of ignorance if you are unable to repay the loan. Therefore, in many cases, loans from friends and family are not recommended, and many have over time proven that it is a really bad idea. Personal relationships and money are rarely a good combination.
If you have borrowed money from someone you know personally, here we have compiled a list of good advice so that you get as much trouble over the loan as possible.
Offer to pay a fee yourself
It is a great advantage that you do not have to pay interest when borrowing from friends and family, but you must not forget that you still use their kindness. If you borrow from someone you know, it can be a positive signal if you offer to pay a fee yourself.
You can agree on the size of the fee yourself, and in many cases a smaller, symbolic amount will be fine. Keep in mind that you are very likely to save a lot on interest – even if you pay a small fee. In short, the fee can be the thing that makes it a positive experience to lend you money.
Alternatively, you may also agree that there is a fee payable only if you do not comply with the installment.
Make a written appointment
Loans between individuals are often problematic because they are so informal. You can also probably experience this if you borrow from someone with whom you have a personal relationship.
Many people find it easier to borrow if the process becomes more formal. It may be a good idea to make a written agreement, which both parties have a copy of. This reduces the risk of later misunderstandings. Maintaining a good relationship can be difficult if one party owes money to the other party, so it doesn’t make it harder to have unclear agreements.
In principle, the written agreement should contain the general information such as the amount of the loan and when the loan should be repaid. If you have agreed on a payment scheme, it is also a good idea to note the terms in relation to this. Finally, it is also a good idea to make an action plan if you are unable to pay back as agreed.
Keep in mind that a written debt agreement is rarely needed when everything goes as planned. The agreement only becomes really useful when things do not go as planned. Therefore, it is extremely important that the negotiable agreement contains an action plan to deal with this.
Communicate your situation on an ongoing basis
If you have borrowed money from a friend or family member, then it is a good idea to continually communicate with them. Make sure they know how things are going and whether there is a prospect of repaying the loan.
It can be difficult for them if they have to keep in touch all the time. Likewise, there are also many who find it difficult to ask for the money they have lent themselves. As a borrower, it is therefore your responsibility to keep up the communication.
Keep in mind that most people always feel a bit nervous when they lend money, because there is always a slight fear that you will not get the money again.
Reduce your consumption
If you have borrowed money from someone who knows you, it may be a good idea to downplay your consumption. If you owe money, it can seem very provocative if they see you spending money on pleasures every single month.
Put yourself in your lender’s shoes. For them, it can easily feel like it is their money that you spend on pleasures. In other words, even a movie theater can cause friction because it was money that you could also have spent on repaying the loan.
In other words, if you have borrowed from friends and family, it may be a good idea to downsize your private consumption until the loan is repaid. It also involves that you should consider what you share on the social media. What a fun night out for you may seem like money out the window for the person who lent you money.
Once the loan is repaid, you can freely spend your money as you please. It is just a really bad idea to spend too much money on pleasures, but you still owe money to a private individual.
Loan the money somewhere else
If you have read this text, you may want to reconsider borrowing from a friend or family member. If so, we can only recommend that you find another lender that you do not have personal relationships with – even if it is a little more expensive.
The advantage of choosing a professional lender is that they do not care how you spend your money, if only you pay as you please. Thus, you do not run the risk of ending up in friendship with someone who means a lot to you.
If you are considering borrowing from another location, it is typically a good idea to explore your options. The price of loans can fluctuate a lot, and for example, it is usually cheaper to borrow from the bank than to get a quick loan – you can see your options here.
A loan from a professional can also be a solution if you are unable to pay off with a friend or family member. By borrowing somewhere else, they can get their money, and you can wait a month to pay off until you have money again.