When life throws you bills that you can’t quite juggle, you need to think about how to stay afloat. While banks and high street lenders may come to mind, you may want to borrow from family and friends – turning to a loved one for a helping hand could be the answer.
There are some key benefits and downsides to borrowing money from family and friends that you should consider prior to approaching them.
- Borrowing from a loved one will likely be more flexible and cheaper than seeking a loan from a high street lender.
- Around 60% of Americans have lent cash to a loved one before (Bankrate).
- Only 14% of borrowers can afford to pay their loans back according to the terms they agreed to.
- 35% of those who have lent cash to a loved one reported their relationship suffering as a result (Bankrate).
- If you need a loved one’s help but don’t want to ask them for cash directly, you could consider asking them to act as a guarantor and take out a guarantor loan.
What Are The Benefits When Borrowing From Family and Friends?
Most notably, a loan from a loved one will often be the cheapest means of borrowing money. While payday loans generally carry around a 400% APR, the interest repayments on such loans make them a financial drain. Meanwhile, a loved one will likely not be profit-driven, and therefore the loan they provide will bear no-to-low interest. Given that 60% of Americans have helped out a loved one through lending cash (Bankrate), it is probable that you will be able to organize such a loan.
As well as being cheaper, a loan from a family member or friend is likely to present less rigid repayment terms. While professional lenders are motivated by receiving their money back alongside the interest you owe, a loved one is motivated by wanting to help you. This also applies to allowing you to pay them back when you are able to.
If You Borrow From Friends And Family Your Credit Score Won’t Be Affected
Additionally, your credit record will likely go unharmed by taking out a loan from a loved one, while a payday loan could scar it. This is particularly pertinent when considering repayments. Given that only 14% of borrowers that take out payday loans can afford to pay them back, it’s not inconceivable that you, as a borrower, would struggle to pay off your 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. As such, your credit score shouldn’t be harmed, meaning that borrowing in the future should be easier.
Of course, your family and friends know you on a much more personal level than a high street lender would. This means that, presumably, they would not take your credit score at face value. Rather, they would account for your personal circumstances rather than approving your loan based on your credit score. If you’ve had a tough financial past, this may make attaining financial support much easier.
What Are The Downsides Of Borrowing From A Loved One?
As simple and convenient as a loan from a loved one may be, 35% of those who have lent money to someone they know have reported their relationship suffering from the loan (Bankrate). Mixing business and pleasure is infamous for breeding resentment, and engaging in a loan together isn’t necessarily an exception to the rule.
Given this, if you choose to go down the route of asking a loved one for a loan, it is paramount that you are open and honest about your financial situation, making sure that you jointly discuss a repayment plan and how you intend to meet that.
Finally, you should be certain that the individual you’re asking to borrow money from is in a comfortable enough position themselves to be lending money. 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 absolutely necessary. If life throws you costs you weren’t anticipating, it is crucial to meet them. This could be a medical bill you didn’t see coming, or your car needs a service that you can’t easily foot the bill for.
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.
If you’ve thought you might borrow from family and friends it could seem like a good idea.
Asking a friend or family member for a loan so that you can make an impulse purchase would be amassing debt and compromising a relationship unnecessarily.
How Would I Repay A Loan If I Borrow from Family and Friends?
If, after weighing up the pros and cons of such a loan, you elect to follow through with asking a loved one for cash, you should write up a formal plan for how you intend to repay them.
This could be a weekly, monthly, or one-off repayment, or whatever suits your needs. It is essential that both parties in this arrangement are happy 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.
As with any loan think long and hard on whether you absolutely need a loan. Maybe there’s another way to pay for what you’re after or forego if what you want the money for is a luxury. Borrowing money from family and friends have some real positives versus taking out a loan. But, keep in mind there is the very real danger of damaging relationships if you do not repay the loan on the agreed terms.