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Borrowing From Friends and Relatives - Is it Worth It?

Jun 5, 2013

They say you should never mix friends and business, and there are many good arguments for this. When you are handling a business then it's critical that personal feelings and relationships don't get in the way of making the right decisions, while at the same time it's also not great for the friendships in question if you end up angry with someone because they made a decision that lost you money.


Even worse though is borrowing money from friends, and if you do this then you should be prepared for there to potentially be a strain placed on your relationship even if you don't necessarily feel it.

The Problems


The problem with borrowing from loved ones is that they won't feel like they can organize it in an 'official' manner. When you take out a loan with a loan company, you of course begin by agreeing the APR, the repayment structure and more - which means that there are no confused messages. With a friend or a relative though, they'll feel obligated to say 'just pay it back whenever', even though they won't necessarily want to. This then means you'll be under pressure to pay it back all the time while they'll start asking questions right away in their mind as to why you're not already making motions to repay the money. Likewise though, they won't want to say anything about that, and so nothing will be said at all until it's too late and they're very upset (at which point it might come out all as one long rant).

Another problem is that when you take out a loan from a lending company, you won't be rubbing your lifestyle in their face all the time. Hopefully you are going to continue seeing your friend on a regular basis which means they might start asking themselves how you afforded that nice new jumper - and if they don't then you may still worry that they are.

Solutions


The same goes largely for family, but there is one fortunate exception - parents. First of all your parents will be less loathe to give you the money - it's part of their 'role' as your folks, and if it means you'll be happier and better off then it means they will be too. Furthermore, your parents have no qualms about telling you when they think you're being stupid because they've done it their whole life. Still though, that doesn't mean you should take advantage of your parents and if they have money troubles of their own you should be conscientious not to give them more to worry about.

If you do borrow money from other friends and relatives meanwhile then you should make sure to draw up strict terms and conditions just as you would from a lender. In other words agree how and when you are going to repay the money, and agree an interest rate that's fair while still being worthwhile to you.

Of course though, in most scenarios it's just better to avoid the whole sordid mess and to take out a loan with the professionals instead. After all, it's what they're for.

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