Loaning money from family– the post that you need to read. Us young people have a lot that we want to do and we want to do it right now. Once college is done it feels like it’s time for us to take over the world. We all would like to have the money to:
- Start our own business.
- Pay off debt.
- Travel the world.
The only problem is that it feels like it takes an eternity to save up for any of these above options. This is when a loan seems like an excellent idea. Unfortunately, it’s extremely difficult to obtain a bank loan for traveling or starting your own business (and the interest rates aren’t the greatest). The only way to alleviate some of the stress of student loans is to consolidate your student loans.
The next logical step to ponder for many, is a loan from a family member– yes loaning money from family, a very sensitive topic but somebody has to cover it. Before you make any decisions regarding family and money, you need to consider the following questions:
How strong is our relationship?
How long have you known this person? Would the awkwardness that goes along with creating a lender-borrower relationship make it difficult to hang out? Everything could be perfectly fine with this person until money comes in the way. You need to take an honest look at your relationship and if money would hurt it. Chances are that yes it would. I know that’s not the answer that you want to hear, but it’s unfortunately more common for money to hurt relationships than strengthen them.
Who is this person to you?
What is your relationship with the lender? Your rich Uncle Fred will have an easier time loaning you a few thousand dollars, than your middle-class cousin Steve. You need to truly comprehend who this person is to you before you decide to ask them for money. You really don’t want to put anyone in an awkward position. You also don’t want to shed a negative light on yourself by asking someone for a loan that you really shouldn’t.
What if I can’t pay back this money?
This is a very sensitive area. You’re loaning the money with the greatest intention in the world to pay it back. However, what if life turns into a roller coaster and paying the money back within a specified deadline becomes impossible? Is there a backup plan? How will the lender deal with this?
There needs to be a contingency plan in place. You could offer to pay the individual the money back in set intervals. You could also offer to pay the money back through offering your services. Whatever the contingency plan is, it must be clearly identified and agreed on by both sides before you borrow the money.
One last final note– even though you’re dealing with family, you still MUST get everything down on paper, with the signatures of a few witnesses. You need to put emotions aside for a few minutes and agree to the terms of this financial agreement. A handshake agreement might work when you buy someone lunch, but not when thousands of dollars are at play.
My take on financial agreements between family members?
I wouldn’t do it. I stay away from this at all costs. I have loaned money to my younger brothers in the past, without expecting to be paid back (more of a gift). Maybe I will get paid back one day down the road, but I knew going in that I didn’t want to create a lender-borrower relationship with someone close to me. When it comes to anyone that’s not a parent or a sibling, I wouldn’t even entertain the idea. Nothing good could come out of it. I’m not telling you to turn your back on someone with financial woes, but you really do need to protect the relationships that matter to you by not getting money involved.
What’s your take on the issue of family and money? Have you been involved in such an agreement before? How did it pan out?
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