If you are in need of money quickly, you may be looking at borrowing from friends or a family member to help you get through financial difficulty. There are a number of advantages to doing so, such as being more likely to receive a more flexible repayment time scale as well as no, or minimal interest rates to pay back.
However, this is something you should take the time to carefully consider, as you do not want to end up potentially damaging a good relationship, or even ending it entirely and unnecessarily. Here are some of our top tips when looking to borrow money from family and friends.
Know how Much Money You Need to Borrow
Before asking for an amount of money to borrow, workout exactly how much you will need and for what. Take into account all of your expenses and your total income to obtain a realistic amount that you would need to tide you over that rough financial period. Next, think about exactly how the loan will be spent. Friends and family are often more willing to lend you money if they know precisely what you are going to be using the money for.
Workout a Budget
Before asking for a loan from friends or family members, work out a realistic plan that factors in repayments that you would be making to the said person; to ensure that you will be able to pay the loan off promptly and effectively. Sit down and look at all your bank statements and utility bills from the past three to six months in order to determine your budget and then stick to it.
Plan your Pitch
For most people, asking family or friends for money is a difficult, nerve wracking task, however well you may get on with them. This means doing a little bit of planning beforehand in terms of what it is you want to say. You should be focusing on getting across why this money is necessary to you right now, as well as a clear plan of action as to how you will pay the money back to them, in order to give you the best possible chance of receiving a positive response.
Explain the Risks of the Loan
Always be open and honest with your friend or family member. If there is any potential uncertainty regarding when you will be able to pay the loan in full and you know this from the outset, you should make sure you explain this to the person in question properly, openly and honestly.
Make a Formal Agreement in Writing
You may have a close relationship with this friend or family member, but you should deal with the loan in a strictly professional manner, in order to avoid potential problems in the future. Consolidating the agreement in writing is an important step in achieving this. This ensures that everyone is on the same page and understands the terms of borrowing.
It may also be worth getting a lawyer or financial professional to look over the agreement to proof read and check it. Once everyone has settled on the agreement, make sure that everyone has signed it and also has their own copy of the contract.
After You Receive the Loan
If you have received a short term loan from a friend or family member, it may be worth updating them on a monthly basis in order to remain on good terms and also to provide reassurance. It is recommended that you keep copies of all repayments made, in the event of a dispute occurring at a later date.
What if I Can’t Keep to the Payment Schedule?
If something has occurred which disrupts the anticipated repayment schedule you had agreed upon with a friend or family member, you should inform them as soon as you possibly can and be honest about your financial circumstances. It may be possible to alter the repayment period or make smaller payments each month.