5 reasons not to borrow from family

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5 reasons not to borrow from family

 

Loans between family and friends rarely end well!

Making ends meet can be really tough, especially if you’re unemployed, on government benefits, a student or earning a low income. And often life throws you some unexpected expenses, such as car repairs, broken appliances, medical expenses or vets bills. Whatever the reason, sometimes you need to borrow some cash to see you through a rough patch.

When you need some extra cash it can be pretty tempting to ask family or friends for a loan. But while this may seem a quick and easy solution to your financial woes, it’s almost always a bad idea! Borrowing money from family or friends can get complicated. Here’s just some of the many reasons why.

  1. Things can get personal, fast

While borrowing cash from family or friends has some perks, such as little or no interest and a flexible (or sometimes non-existent!) repayment schedule, emotions can get involved pretty quickly, and relationships can become strained, or worse.

  • Your potential lender may want to know what you want the money for, and judge you for it.
  • Your lender might kill you with their kindness and tempt you into borrowing more money than you’re going to be able to repay, making you feel trapped.
  • You may feel permanently indebted to your lender, and feel you always have to please them and do everything that they suggest.
  • Family gatherings and social occasions can become awkward, with neither of you (or anyone else who knows about the loan!) wanting to discuss the loan, money or anything that costs money.
  • Your lender might constantly remind you of your debt every time you see them, or demand full repayment the moment you have an argument.
  1. Your business becomes their business
  • Getting a small  loan from a lender means certain government requirements must be abided by, so you will be asked some questions about the purpose of your loan. However you won’t be judged and we understand that everyone has their ups and downs.
  • But when borrowing from family or friends it’s a different story – they’re likely to want to know what you need the money for and why, and use this to decide whether to loan to you.
  1. The loan terms can be really unclear

Loans between family and friends tend to be open-ended. While this may sound great for you as a borrower, think about the lasting impact this might have on your relationship.

  • Often no agreement is reached for a timeline for repayments, and no interest is included on the loan.
  • The result is that the lender doesn’t know when their money will be returned, and as the borrower you don’t really know when you are expected to repay the loan by.
  • Without agreed terms and a payment due date, repaying the loan can become your last priority.

This leaves both parties in limbo and can end in a lot of hurt feelings, misunderstandings and broken relationships.

  1. Some things are best left to the professionals!

Without official loan documentation and agreed conditions, squabbles can easily arise.

  • As time goes by you and your lender might start arguing about things like the agreed interest rate, when you were supposed to pay the loan, or what you’ve been using the loan funds for.
  • You might find your actions and social media posts being criticised, or receive constant comments like “How come you can afford to do that, but you can’t afford to pay me back?”
  • As the saying goes – when money changes hands, friendships and family get destroyed. You don’t want your relationship being ruined over money.
  1. You’ll end up repaying more than what you owe

And we don’t necessarily mean in dollars!

  • Most people think that borrowing from friends or family members will be cheaper, but often the opposite is true.
  • Borrowing from family or friends can bring with it a sense of obligation. You may feel like you need to sweeten the terms to thank the lender for their kindness, and add a little extra to the agreed interest or do favours for them.
  • You might feel bad about having asked for a loan, and to make up for it constantly feel you have to go the extra mile and do more for your lender for the sake of your relationship with them.

If you need a helping hand to see you through a rough financial patch, don’t put your personal relationships at risk by turning to family or friends for a loan. Be aware that things can easily turn sour, and your relationship may never go back to normal.

Give your local City Finance branch a call or pop in for a chat and some helpful lending advice from our friendly staff. We understand how tough it can be to make ends meet and are here to help. We’ll focus on your unique situation to tailor a loan and repayments around you and your needs. Contact us today – how can we help you?