Stop Before You Borrowing Money from a Relative

Written by: Scott Sery

There comes a time in just about everyone’s life where they are stretched for cash.  They either made a stupid money mistake, or had unexpected bills or they lost their job and needed some money.  While there are many programs out there to help alleviate money woes, such as bank loans and payday loans, there are times when a person feels they should turn to their relatives to help them through their time of need.  It is nice to have relatives that are able to help, but there are many pitfalls to consider before borrowing money from a relative.

If you approach a family member and ask for money, you are instantly taking your relationship to a whole new level.  That person, however much they love you, now sees you as a business partner.  You have put undue stress on the relationship.  If your relative does lend you the money, you can no longer look at them the same way.  They have now become someone that you are obligated to repay.  While you may want to repay them systematically, you will feel like you should wait until you can repay them all at once.  That time often ends up being further down the road than you originally intended.

The lender is also experiencing conflicting emotions.  You have put him or her in a place where they no longer see you as a family member, where your only obligation is to share quality time and a familial bond, but now you are someone that owes them something.  It becomes harder to share quality time, because every dollar you spend, on a new outfit, eating out, or anything else that is not a necessity, raises feelings of contempt.  That is money they feel should be going toward paying back the loan.

It is usually best to avoid inter-family lending.  However, there is a right and wrong way to go about it.  For those who cannot get a bank loan, or who cannot get an interest rate that is reasonable, a well-off family member can help out tremendously.  But the loan needs to be treated as any other loan.  Regular payments should be scheduled, and interest should be included (this helps to compensate the lender even if he or she does not want to be compensated).  If the details and structure is skipped, the lender should go into the transaction as though it is a gift with no expectations of being repaid.

Borrowing money from a relative is great if you are able to do so.  However, even your well-to-do relatives may not be willing to take on the stress of lending you money.  The transaction should be done strictly as a business transaction.  Even writing out a contract where you both agree on the terms will help to keep things going.  While it may seem unnecessary, the contract will help separate the business from the family.  You will be making regular payments, the lender will be repaid in a timely manner, and nobody will be hurt if you go out and buy an expensive toy.


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Stop Before You Borrowing Money from a Relative

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