Should you borrow from family and friends?
If you are in need of some extra cash, some people shy away from things such as high cost loans and bank overdrafts and instead opt for borrowing from their friends and family. Is this wise? Would it just be better to take out a short term loan?
Some people feel far too awkward, and yes, your pride may take a hit, but you will avoid the debt that comes along with payday loans, unpaid credit card balances and mistreated overdrafts. With a payday loan, The interest rates can be so high that even if you pay back the money within the agreed repayment period, it will still cost you a lot more to give back than you asked for.
Work Out a Budget
If you want to borrow from your family or friends, you should first start by drawing up a budget before getting into the nitty gritty. You should do this to see how much money you will have left after you pay your current living expenses.
To do this, look at your current account and any credit card statements dating back from the last 3 months. Before drawing up your budget, it is a good idea to get these statements ready so that you aren’t doing the budget alongside.
Set Some Rules
If you do decide that the best option financially is to borrow from family or friends, you should set some ground rules and agree on a settlement which everyone feels comfortable with. Remember, every borrowing agreement should always be put in writing so that there is proof of the terms of agreement.
You should also discuss with the family member or friend you are borrowing from what would happen in the worst case scenario, you were not able to pay them back by the agreed time.
These sorts of things can cause big arguments when not settled beforehand. Keep them in the loop and keep them up to date about when their money will be coming in, and make sure you don’t put off telling them if the repayment is likely to be late. Being honest will not damage the relationship with that person.
Make sure that for you, the repayment plan is feasible, and for them it is fair. You do not want to leave them in a potion where they will then have to borrow money to make up for what they have given you.
What to Consider if You Are Lending to Someone Else
When a close friend or family member comes to you for help with money, it can be hard to refuse. However, there is not any point in getting yourself into financial struggles just because you want to help them out.
Can you afford it? You should draw up a budget to see if you are able to lend any money at all. See our guide on do I really need to borrow money.
What would you do if the borrower can’t pay you back? As much as you do not want to consider this, the person you have lent too may be late in their repayment, or not be able to pay back the full amount.