There is no bigger potential for a family rift than borrowing money from a relative or even a friend. If you find you are in a financial crisis and decide to ask for help from a loved one, there are ways to make it legitimate and hopefully pain free. You can not jut take it for granted that your family has loaned you money out of the kindness of their hearts. You must treat is just as seriously as you would getting money from any professional lender.
Here are some tips to keep in mind when preparing to borrow money from someone you know.
Ask yourself honestly why you need the money. If you can’t be honest and upfront about reason you need the money you are looking to borrow, you do not need to be asking for a loan.
Consider all of the options you can reasonably use to pay back the money before approaching someone for a loan. The lender will feel much more comfortable if you have thought the situation through prior to asking for the money.
Consider the consequences of reneging on the loan. No one wants to lose a close relationship over a financial situation. If you foresee any reason that would present a problem with the person you are asking, do not ask for the loan.
Put everything in writing just as you would with a professional lender. No matter how much the amount is, put all aspects of the agreement in writing. Make a copy for each involved party. Make sure your agreement includes:
The names of the lender and the borrower
The date of the loan agreement
How much money is being borrowed
How much the minimum regular payments will be
Any interest rate applied to the initial loan
The date the loan is to be repaid in full
The timeline for making payments (weekly, monthly)
The total amount of payments to be made
Depending on the size of the loan, the lender may not be interested in arranging a formal agreement; however, it is still a good faith effort to ensure you will not default on the loan. If the sum of money is particular large, it may be worthwhile to utilize the supervision of a lawyer to protect the interest of both parties, should something happen during the deal. It may also be important to the lender to feel confident knowing you are working on a solid plan to avoid a similar situation in the future. If you are expecting a loan from them, they are expecting not only repayment, but honesty in return.
Ultimately, your gut instinct may help you decide whether or not to approach a family member or friend for a loan. If you do not plan on sticking with your agreement or you make promises you know you can not keep, it is in everyone’s best interest that you look elsewhere for financial assistance. Respecting your family and friends and maintaining a good relationship can not be repaid if you lose their trust over a financial matter.
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