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Should You Borrow Money from Friends and Family?

January 14, 2020 · 5 minute read

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Should You Borrow Money from Friends and Family?

Perhaps you’ve found yourself in a situation where you can’t make ends meet, so you’re trying to figure out the best way to get the cash you need. In that situation, you very well may be considering whether or not friends or family members might be able to float you a loan. But, is that a good idea?

As with just about any finance-related question, the answer depends on your personal situation. Some factors that can help to determine whether borrowing money from friends and family is a good idea or not can include:

•   how much money you need to borrow
•   how long it would take to pay it back
•   how sure you are that you can pay it back, as agreed upon

In this post, we’ll delve more deeply into related issues and more, sharing both the advantages and disadvantages of borrowing from family and friends. Then, if borrowing from loved ones seems like the right solution for you, you can take a look at the suggestions we’ve shared about making arrangements to pay the money back—and we’ll also offer info about low interest personal loans with no fees.

Before you borrow money from a loved one, it’s important to consider some of the outcomes. Borrowing money from a friend or family member could lead to strain on the relationship.

More than 50% of consumers surveyed in a 2018 report from Bank of America, have witnessed a friendship end because of money owed.

Not surprisingly, 77% of Americans stated in the same survey that IOUs hurt friendships, and 43% of Americans in that survey admitted they’d end a friendship if that person didn’t pay back the money owed. And, of that 43%, almost 75% of them said that their “financial breaking point” was $500—or less.

Now, after sharing that caution, we’ll provide more information about some advantages and disadvantages of borrowing from family and friends.

Advantages of Borrowing Money from Friends and Family

First, let’s assume that the amount you need to borrow is relatively small, say $200, and your income tax refund check is supposed to be on its way. It might be faster and easier to just explain this situation to someone who knows and trusts you than to borrow from a lender for a very short period of time.

Now, let’s say that the amount you need to borrow is bigger or the repayment time would be longer. What are the advantages of family/friend borrowing then?

Well, it’s unlikely that your credit score will play a role, as it would from a lender (although, if you have a history of not paying back loans as agreed upon, your friends and family may be more and more reluctant to lend you money).

Plus, you may be able to get a lower interest rate. In fact, you may be able to pay the money back without paying any interest at all.

You may be able to get more flexible repayment terms with the friend or family member. In fact, they may be satisfied if you simply pay the money back by a certain date.

Or, it may be fine if you pay part of the money on some non-specified date in January, some non-specified date in February, and so forth. This can vary so much based on you and your friend’s personal situation.

Disadvantages of Borrowing Money from Friends and Family

When you borrow money from a credit union, bank, or other lender, it’s a business transaction. They have guidelines, you submit an application, and the process moves along according to set standards.

When you’re borrowing money from family and friends, though, the situation can be much more awkward. First, how do you initiate the conversation? That alone might be tough.

Next, the person will almost certainly want to know why you need the money, and this may or may not be a difficult discussion. You may need to disclose a situation to a loved one that you’d really rather not discuss with them or refuse to answer, or provide a less-than-full disclosure.

Now let’s say that the situation isn’t awkward to explain at all. It may be that you’ve suddenly gotten hit with $1,000 in car repairs and you’d just depleted your savings to replace your furnace.

Your relative or friend might fully understand the situation and loan you the $1,000—but then they might get frustrated if you go out to dinner the following week, figuring that you should have used that money to start paying back the loan or to rebuild your savings. In other words, you may find yourself needing to justify your actions, even if you are making payments as agreed upon.

Then, if you can’t make payments according to your agreement, conflict can arise in a way that damages relationships. It’s also possible that the friend who loaned you money might find themselves in need of a quick cash infusion, and may request that you accelerate payments. If you can’t do that, hard feelings can arise, even when you’re making payments according to your original arrangement.

As yet another potential source of conflict, another friend or family member could make false assumptions about the situation and create dissention—and, again, this challenge could arise even if you’re doing exactly what you’d promised to do.

Here’s one more consideration before we move on to the next topic. Let’s say you ask to borrow money from a loved one, and they say no. You might feel resentful, certain that this person could help if they wanted to – again, this could damage the relationship.

Things to Consider If You Borrow Money from Friends and Family Members

If you decide to ask to borrow from loved ones, an article in Forbes discusses the merits of clearly sharing why you need the money, precisely how you’ll use it, how long it will take you to repay the loan, and how much interest you can pay.

The article suggests creating a short presentation that outlines those points and illustrates to the potential lender that you are serious about repaying the loan.

US News and World Report points out that it doesn’t have to be a bad experience when borrowing money from family or friends, adding that it’s important to create a repayment plan and agree upon details of significance. Recommended specifics include:

•   agreeing upon a repayment deadline and/or payment dates
•   putting the agreement in writing, so expectations are clear
•   creating a Plan B, in case there are any unexpected issues with repayment

Open and honest communication can be key throughout the process. If, as a borrower, you may be late on a payment, consider sharing that openly. Don’t let it be a surprise to the lender.

Considering a Personal Loan

Sometimes, borrowing money from friends and family isn’t worth the risk. You may decide to avoid the potential tension that can arise from this arrangement. If so, you may be looking for a more straightforward loan option—and an unsecured personal loan can fit that description.

With this type of loan, you may be able to get the cash you need, quickly and easily, with many online lenders available who can process your application in minutes and get the funds to you within a day or two.

If you have solid credit and a steady income, among other important financial factors, you may find lower interest rates and, because the loan is unsecured, you don’t need to put up an asset (say, your car) as security. Often, flexible repayment terms are also available with unsecured personal loans.

Some unsecured personal loans have fixed interest rates, which may make it easier to include payments in your budget since they won’t fluctuate. You can use them for multiple reasons, including consolidating credit card debt, funding home renovations or repairs, or to cover unexpected medical bills.

Unsecured Personal Loan at SoFi

At SoFi, we make applying for unsecured personal loans fast and easy. We offer low rates and charge no fees—no origination fees, pre-payment penalties, or late fees.

Plus, if you lose your job, you may qualify to temporarily pause payments through unemployment protection, and we’ll even help you to find your new job!

To help with your application, our loan consultants are happy to answer questions, and you can find your rate in just two minutes. You can apply online with live customer support available seven days a week.

Find out more about borrowing a personal loan with SoFi.


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