SevenTips for Borrowing Money from Family and Friends

Borrowing money from relatives and friends can be an awkward situation but it may sometimes be necessary. Unfortunately, many times people end up on TV court shows after loaning their friends or family money because they fail to repay it or they do not repay it under the conditions agreed upon by both parties. If you are in a situation where you need to borrow from a friend or family member, here are some tips you can both use to make the situation as favorable as possible.

• 1. Do not ask a friend or family member to borrow money until you have tried every other possibility. You can consider getting a loan from a bank, selling your car, cutting out some unnecessary bills, quit eating out and much more to see if you can remedy your financial situation before borrowing money from someone you know. Consider getting another job or anything you can think of to make extra money before asking a loved one. Getting a loan from a friend or relative should be an absolute last resort to get yourself out of a financial crisis.

• 2. Tell your friend or relative the reason for the need. When you have finally decided to ask a loved one for financial help, have a good reason. Borrowing money to go on vacation this year or pay for that brand new car you bought a few months ago is just going to irk the person you are asking. However, asking for money to buy groceries for your family or so you can afford gas to get back and forth to work is more reasonable. Be truthful with the person you are asking or you are going to ruin your relationship when they inevitably find out the real reason for you wanting to borrow money.

• 3. Put it in writing. When you have a written contract for borrowing money, it dispels a lot of confusion that can occur. Be sure to spell out the terms of the loan in the contract so there is no confusion about what is expected. Include information like the date the total repayment is due, any interest that is being charged, penalties for late repayment and anything else that might come up. Both parties should sign the contract and have a copy of it for reference.

• 4. Give your word and stick to it. The problem with borrowing money from family and friends is that many people do not pay it back and it strains or utterly ruins the relationship between the people involved. Sometimes this even spreads to family members who were not involved in the loan because they take sides in the situation and it ends up tearing families apart. Don’t be the reason for this happening. Be sure to keep your word about repaying any money that is loaned to you according to the terms of the contract. If you have problems repaying it according to the terms, consider writing up a new contract that you can both agree on with new terms. Don’t just simply forget about the loan and ignore your responsibility for repaying it.

• 5. Make regular payments. Never rely on making one large payment on the due date of the loan repayment because this rarely happens. Instead, make payments each month or every other month until the loan is repaid in full. Make sure your payments coincide with the payment terms in the written agreement as well.

• 6. Treat it like you would any other business. Just because your parents or relatives loaned you money does not mean you should expect special treatment. Treat the whole transaction as you would with a bank or other business. Never bring the loan up during Thanksgiving dinner or any other time when it would be awkward or inappropriate to talk about it. This goes for both the lender and the borrower. Simply set aside a certain time to talk about it and deal with it during those times to avoid making it a personal matter rather than the business matter that it should be.

• 7. Watch your financial decisions while the loan is outstanding. While your loan repayment process is still in effect, don’t go spending large amounts of money on unnecessary items. If your friend loaned you a couple thousand dollars to pay your rent and put food on your table, don’t go out and buy a new iPhone or some other unnecessary item until you pay the loan back. Otherwise, this will just make you look irresponsible and unconcerned about the money that you owe.

As a general rule of thumb, never borrow money from family or friends. It is just too easy for the money to come between you in your relationship. But if it is absolutely necessary, use the above tips to make the situation less awkward than it usually is.