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Borrowing from Friends and Family

Written by Dian Herdiana on 6:40 AM

There are many factors that you need to consider before borrowing from friends and family.

First and foremost you have to discuss, with whoever you are borrowing from, your financial situation so they are able to make a decision whether or not to lend you money based on whether they are comfortable that you are able to repay them.

There is no quicker way to lose friends or cause family strife than to get in a situation where you have borrowed money from them and cannot pay it back when they need it.

It is also recommended that you only borrow money from people who have excess funds that they have invested elsewhere and where you can pay them interest for the use of those funds so that they aren't losing out on the deal.

In situations like this you will be able to borrow money at a lower rate than you could get from any of the financial lending institutions and the person lending you the money could also get a better return than they would get by investing their money in those same institutions or at the bank.

So it is quite possible it could be beneficial to both parties in the deal but once again I need to stress the importance of total disclosure of your financial position as they need to know that to determine whether they are happy that you are a safe investment or not.

Friends or family should not feel obliged to lend you money no matter how bad your financial position is because it could put them in a similar situation.

It is better fair you to leave the risk with financial lending institutions if you have any doubts whatsoever of paying back the money borrowed from those close to you.

Some people are only too willing to take advantage of the opportunity to earn a little more interest and if that's the case then well and good - they have decided that you are a worthwhile investment. Let them have a look at all your books and your budget and possibly even get them to help you work through your budget and to sort out a plan of repayment for their loan to you.

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