Should You Borrow From Family And Friends?
Finding yourself short of money can be overwhelming, whether it is being behind on bills, an emergency, or from losing your employment.
In the last year, around 9 million found themselves increasing their borrowing to tide them over for another month or two. Borrowing money from family and friends is often the most common form of borrowing and can often be interest-free and without any credit scoring or approval process. But it is important to understand the pros and cons since money between family and friends can compromise relationships.
Pros Of Borrowing Funds From Family And Friends
Borrowing money from family and friends can often be a good idea when you need funds urgently. When unexpected circumstances do arise, family and friends may offer to support you out of goodwill and will often be able to help out quickly, providing you with whatever you need for the time being. Borrowing from family and friends also means you won’t be forced to pay back extra on your loan, as you may have to from a bank, payday lender or credit union.
Banks and other lending facilitates often charge ridiculously high-interest rates, meaning that you risk not being able to repay the money borrowed within the pre-arranged time frame, therefore paying additional interest and being trapped in a vicious cycle. This can then lead to excessive debt, meaning that it was not worth borrowing the original money in the first place.
Family and friends may also encourage you to pay them back what you owe quickly, as they don’t want to risk not having their money returned. Consequently, borrowing from those around you may entice you to repay the funds as you don’t want to be in debt to people you see on a regular basis, whereas borrowing from a bank or large institution might mean you feel less pressure to repay the money as you don’t know where it has come from.
Some families also lend their relatives money without the requirement that they ever pay it back. Many parents and grandparents set funds aside, saving money to pay for their children’s education, weddings, cars and house deposits. This can save their family from taking out loans with interest rates in the future and provide financial support through more difficult times.
Cons Of Borrowing From Family And Friends
Whilst family and friends may offer financial support in a time of need, it may not always be the best solution. Close relations may not demand that the money they have lent you should be repaid, leaving you feeling guilty and not wanting to ask them for financial aid in the future.
“If repayment terms are too loose,” explains John Gauthier of Hoopla Loans, “this can create an uncomfortable atmosphere, with people expecting repayment within a certain timeframe. Things can get tricky if you do not repay when expected or if you cannot repay at all, this makes things extremely awkward.
“Make no mistake, when it comes to money, things can get very tough even between close family members.”
Borrowing from those around you can also create animosity if you are embarrassed to explain your financial situation to them and ask for help. They can also refuse to lend money, leaving you with no option but to take out an alternative loan.