When I graduated from college and I was looking for a house to move into for my first job, the options were pretty limited in my small town. There was nothing available for rent other than a few units in a low-income project that I didn’t qualify for anyway. My only real option was to buy a house.
Unfortunately, I didn’t have the money saved up for a down-payment, or closing costs on a house. My parents offered to loan me some money for the closing costs and I got a loan for 100% of the purchase price of the house.
While my situation of borrowing money from family turned out okay (so far), I know this is not usually the case when you borrow money from family or friends. With that said, I don’t think I will ever put myself in that type of situation again by borrowing money from family or friends. Here are # reasons you should never borrow money from family or friends.
No Set Terms
Most financial arrangements between family or friends don’t have any set terms as far as a plan for repayment, an interest amount, or a minimum payment. While this may seem like a positive, it can turn into a negative very quickly. Those who lent money never really know when to expect repayment and those who borrowed the money don’t know what to expect on their end either.
If you do borrow money from family or friends, you should have a set plan in place so both parties know what to expect.
Prioritization of Debt
I borrowed money from my family, and I’m also in some credit card debt. Because my parents are generous and don’t charge me any interest, it has been difficult to make their loan a priority when I also have high interest credit to pay off. On the other hand, I don’t want to offend them by making their loan the lowest on my priority list.
Awkward-ness Might Occur
Financial situations can change at the drop of a hat, and sometimes the lender in family loan situation might find themselves suddenly wishing they had that cash back. When this happens it can create a very awkward and maybe even tense situation. The borrower may not have the means to pay back the loan right away even if the lender really needs the money back.
Trust Issues May Develop
In my case, I used the money from my parents to buy my house. But sometimes people borrow money from family and friends as an easy way out of their problems. For example, people may borrow money from family or friends to pay off gambling debt, addiction debts, and more. In these cases the lender is not doing the borrower a favor. In fact, they may be enabling the borrower by allowing them to put themselves right back in the same situation again.
Borrowing money from family and friends might seem like a good idea, but if there’s any way you can avoid it by getting a personal loan instead, you should always try that first.
Have you borrowed money from family or friends? How did it turn out?- Kayla