6 Things you need to know before borrowing money from friends and family

Borrowing money from family or friends seems convenient during tough times. You might be tempted to take up the friendly gesture. However, are you prepared for what follows next? Read this before you borrow money from friends and family:

1) Who is your go-to person?

How does this matter? When you think of borrowing money, there is always that one person that out-shines the rest. You need to rethink why they are your go-to person. Is it because they might not refuse lending money? Or is it because they might help you to feed their own ego? You may want to steer clear of the latter. Chances are that they will never stop sharing stories of their kind act. This could leave you embarrassed or make you feel uncomfortable. You would not want to blush in public every time they remind you of it.

2) What is your relationship equation?

The need and greed for money often crushes relationships. Before borrowing money, review how it could impact your relationship with the lender. Consider your equation in the past. Were you emotionally or physically available for the person when needed? Have you borrowed from them before? Were you able to repay in time? Such questions could help you understand your current equation with them. You may regret losing a special relationship because of money.

3) Is there an alternative?

You could be so adamant on approaching a friend or family member, that you do not notice the alternative. Ask yourself, is this loan is necessary? Is it a good idea to involve a friend or family member? Could you budget your spending and save instead? Could you take a formal loan? You may realise that you prefer taking out a loan on interest rather than risk your social image. You know there is no free lunch. Thus, look for an alternative before asking friends or family members.

4) What is the expectation?

Knowing the expectation of the other party is always helpful. Since you are receiving the help, even a small contribution might help. Keep your expectations low. But find out what the lender expects. Is a formal agreement expected? Do they want a set date for recovery? Are they expecting an obligation in return? Do not read between the lines and expect leeway since you know the lender. Keep all details clear and establish an agreement that is agreeable to all.

5) Do you have it on paper?

This is the biggest mistake many commit—while borrowing from relatives and friends, they rarely get the details on an agreement. This agreement should contain the details of the loan like the time period, interest rate, etc. Otherwise, the interest rate or other details can be changed over time. This can expose you to great problems. Yes, you trust your relatives and friends. However, a simple contract is good for all. Don’t forget to get one.

6) How do you plan to repay?

Figure out your income and expenditure plan before asking someone to lend you money. Your social standing, dignity, and pride are at stake. What more, you could lose a friend forever. Assign a deadline for repayment that you can easily follow. How much can you set aside each month towards repayment? What is your Plan B in case you are unable to pay? What is your capacity? Can you afford to pay back in the stipulated time? If you are not sure about repayment, reconsider your decision to borrow. Since winning a lottery is unlikely, keep your plans realistic.

Above all, you may want to examine if borrowing is a habit with you. Surprised? You may have caught it like the flu. Take a look and check if you have borrowed often. This is not just money. The camcorder or the jewellery you rent from a friend also qualifies as borrowing. Study your borrowing behaviour the next time you borrow money from friends or family.