The Factors of Borrowing from Family and Friends
Money can sometimes come between friendship. It can even spoil family relationships at times so it is important to think before lending to or borrowing from friends and family. It is often the cheapest way to get the money you want but there are other considerations. If you are in real difficulty or you know that you are lending to someone in real difficulty, there is always the chance that the debt cannot be repaid and you must be prepared for that and the consequences of that happening.
There are considerations when the situation arises which may affect the decision.
If you know that someone in the family has a short-term cash flow problem and the money will be repaid fairly quickly, there is really no problem in agreeing to a loan. You may even get a little interest as well.
However, it becomes more difficult when a relation who has a history of financial problems wants money. The prospect of repayment is slim so the wisest thing is to refuse because you are likely to be seen as an easy source for money again in the future.
You should never lend an amount that you cannot afford because that can put you in trouble in addition to the person you are helping. Each individual has a different view on what obligations they have and how they should address them. Even close relations can let you down and it is certainly best to regard any lending strictly on a business basis. You may well get no favors in return for your help so don’t expect them. If the ‘’transaction’’ is kept on a formal business basis, with a proper contract, there will be no surprises on either side.
There is no benefit in criticising someone for getting into financial difficulties. It happened to many during the recession when unemployment was an everyday event. Certainly someone who has regularly lived beyond their means has made mistakes; sometimes this is evident in an expensive credit card balance. Anyone embarrassed to admit to this and able to get a personal loan at a cheaper rate should take one, and pay off that balance in full.
If you do agree to help someone out, you should make it clear that you are unable to do this a second time; that should engender more discipline in the friend or relation who has got into difficulties.
You should be firm in this and not give way to sad stories unless there is a serious emergency. If you stress to a borrower the need to think more carefully about their finances, they should perform better in the future.
If the money being asked for is to pay specific bills then it makes sense to say you will send the money directly to the creditors involved. If you are met with a frown when you suggest that, gauge the reaction of the person asking for money.
You should not discuss this with any third party, including the closest of relations. That is only likely to result in gossip and harm to relationships.
If you have prepared a contract then you should expect to be repaid in accordance with that contract. There are ways to get the money back without hounding the borrower though you should not feel guilty about asking if the money is not forthcoming.
One thing you should never do is to open a joint account or credit card whereby you become responsible yet have no control over the spending on that account or card.
You will probably be more adept with money than the person asking for help. There is nothing wrong in offering advice about handling money so that your friend or relation performs better in the future. If they do, it is less likely that you will need to help out in the future.