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Should you borrow from friends?

Borrowing Money From Friends and Family? Read This First

Updated on October 23, 2022

 Personal Finance

Money issues can be a severe obstacle in any relationship. There are endless stories of families that have taken to quarreling over money matters, and we could fill several articles just with those stories alone.
It's not difficult to see why many of us borrow money from friends and family. There are no credit bureaus to deal with, even when the amount of money is considerable.
There's generally no interest that's owed along with the primary loan amount, and terms are usually 'pay it back when you can.' It's that last factor that tends to drive rifts between friends and family members as personal loans take a lower priority. Sometimes the borrower becomes self-conscious about taking the loan, and the lender becomes too embarrassed to bring it up after a time.
Most often a rift will arise because one family member loaned money to another and terms were never laid out in advance, or someone is having trouble paying the loan back, or any number of other reasons. Issues with money are the second leading cause of divorce in the United States, and while there are no statistics kept, you can probably think of friends or family member that had problems when they borrowed money from another friend or family member.

Borrowing Money from Friends or Family Is a Tough Situation

Our loved ones want to help, but too often don't consider the potential for conflict that can arise when everything is just based on a handshake or even less. Trust can be put to the test, miscommunication is often mistaken as a personal slight, and sometimes these rifts can last for years, taking a long time to heal.

Reasons Why You Might Not Want to Borrow Money from a Friend or Family Member:

There are no terms.

Whether deliberately or just by fault, friends and family members get uncomfortable when they bring up loan terms, and those who borrow money tend to set aside the courtesy to pay back the loan. It's almost as though a rift were set into the personal relationship before the money was even loaned.
If you are borrowing money from a friend or family member, consider offering up some reasonable terms yourself, including one or two deferred payments if times get tough again. You'll be surprised at how willing your loved ones will be to agree to reasonable terms.

There are still no terms.
This is a point worth repeating. Loans from friends or family members generally don't have a repayment schedule, and 20 years from now, you may have trouble looking that family member in the eye at the reunion. Was it worth it? You'll already know the answer to that.

Offer up your own terms.
Another point worth repeating. Do some research on loans and go to your friend and family member with a reasonable repayment term and a small percentage of interest. This isn't just about repaying a loan, it's about demonstrating to your friend or family member that the relationship is far more critical to you than money. Give your lender the option of turning down terms rather than being felt compelled to bring them up.

Create a contract.
Draw up a contract you can both sign and put in some reasonable clauses that will let you both continue to function in your respective relationships. You might be surprised how much freedom a contract will actually give you.
When both parties know what's expected of them, then there's no need for uncomfortable talks or essential discussions. Few things are worse than lending money to a friend or loved one and then seeing that new sound system installed in their car, especially when you decided you couldn't afford one yourself.

The reasons may not mean you need the money.
Thinking about starting a business? Great! We wish you all the best of success in your new endeavor. But is this a good reason to borrow from a friend or family member? What will the amount be? What is the return on investment your friend or family member can expect? Had you thought that far ahead?
Of course, you believe in yourself, and it's reasonable to expect the rest of the world to believe in you and your money-making ideas. But, not everyone has had your experiences, or perhaps some have had them and not experienced the success you intend to see.
Don't blame others for being skeptical, it's only natural, and you might actually need to hear an objective assessment of your idea. Don't go to a friend or family member to help you start a business, take out a business loan or use your own assets such as a car to take out a title loan if you believe so much in your own idea. Besides, if you prove yourself a success, that same family member may be willing to help out when it's time for your business to expand.

Books, yes, school no.
Maybe you've been accepted to that university, and your parents don't have enough to foot your tuition. Better to take out a student loan, or a personal loan to pay tuition and let the relative or friend help pay for your books or other school supplies.
Your family member or friend now has a chance to help you along with your education without the worry of repaying a large loan. Most student loans are low interest anyway, and a few percentage points aren't worth the collapse of a meaningful relationship.

It's tough to enforce a loan.
Seriously, when is your friend or family member ever going to raise your interest rate or revoke your credit? The latter option does happen, but that only serves to drive a wedge deeper into the relationship. Sometimes the borrower can miss a payment and become afraid that the lender is angry and all communication ends completely.

The larger the amount, the deeper the wedge.
That's practically a given. If you borrow 50 bucks from a cousin, you can quickly pay it back, or they can easily shrug it off. But what happens if a friend loans you the down payment on your house and then you wind up in a bad financial situation or worse, you have to declare bankruptcy.
Sometimes the lender will come up with creative ways to get the borrower to pay off the loan. OK so you borrowed money from your friend down the street, and he's entirely laid back about it. 'No problem,' he says. 'You can just do a few things for me around the house, and we'll call it even!'
Now you find yourself painting his house, mowing his lawn and generally taking care of things he should have done for himself and without knowing it, you've entered into a relationship of indentured servitude. The practice is actually considered inhumane and illegal in most parts of the world.

You might be borrowing money from family for the wrong reasons.
We won't go into details here, but you can probably find examples of friends and family loaning money to loved ones thinking they are helping them out when in truth, all they are doing is enabling their bad behavior. In such cases, not only has a wedge been driven into the relationship, but the borrower may dig themselves deeper into that hole they so desperately want to get out of.

There's no stress about your credit score.
OK, so you blew off that thousand-dollar loan from your friend because there are no real consequences not to pay it back. Even your credit score won't be affected. No problem, right? Sure, if you don't really care about the relationship.
Is that friend really a friend if you place money above the relationship? Maybe a family member you no longer talk to won't haul you into court, but we're willing to bet an ex-friend won't have any qualms about it, and that actually will have a profound effect on your credit score.

Cash only. No exceptions.
Yes, a check can stand in for cash, and it may not have even occurred to you. We are also aware of some 'loans' coming in the form of a borrowed credit card or even opening up a line of credit in the lender's name and leaving it to the borrower to pay it off.
Do not do this. Whether you are lending or borrowing the money, do not under any circumstances give or take a credit card, or open up a line of credit for someone else.

Don't borrow what you cannot afford to repay.
It almost seems like this doesn't need to be said, but sometimes people will take advantage of a family member's generosity. And it is yet another point worth repeating. Do not borrow what you cannot afford to repay.
What if they actually need the money? What happens when the friend or loved one you borrowed money from runs into an unexpected financial difficulty? How awkward are things going to be between you the next time you see them, and it is clear they are struggling?
What if you lose it all? What if you run into additional financial difficulty and are unable to repay the loan amount to your family or friend? Then you've lost both money and an important relationship. Is it worth it? Seriously, is it?

It brings up many interesting aspects to consider if you're thinking about borrowing money from a relative or friend. Is someone being taken advantage of for their generosity? Would someone give up much-needed finances to help someone else, and is that a good thing? So many things to think about in terms of the potential of a strained relationship and how much difficulty might come to someone's life if you borrow money from them.

How loan agreements work.

If you've had experience with an unsecured loan or a secured title loan from CASH 1 before, you'll know there is some amount of paperwork to read and fill out. There is a contract to sign and terms to be discussed and agreed upon.

Many people think this is for the protection of CASH 1, but the truth is, a loan agreement protects both you and CASH 1 in many ways most people don't even consider. A contract is the set of rules that both parties are compelled to abide by when they sign. These rules are set up so that there are no lingering questions or doubt about what is expected from both the borrower and the lender.

Contracts are a way of releasing both parties from any aspects that might arise from circumstances unforeseen. The terms of the repayment of the loan are laid out and are not negotiable. This is good for the consumer because they will be able to pay their loan back promptly and know with full knowledge when they will be able to move on after repaying their debt.

We've heard stories of family members loaning large sums of money to other family members and then not paying it back for years, and sometimes never. You can imagine the apparent strain this puts on the relationship. And this isn't always because the loan receiver is somehow irresponsible.

Sometimes circumstances arise, and they're unable to pay the relative back, and then they just get into a pattern of not having any extra money available for repayment.

Consider Borrowing from CASH 1 Loans

With a loan from CASH 1, the terms are all explained in detail upfront, and there is no worry whether or not the loan will be repaid. And most importantly, no potentially strained family relationship or friendships.

CASH 1 can help you out of a temporary financial difficulty and avoid the potential embarrassment of having to ask a friend or family member for a loan. Our no-credit-check financial services like personal installment loans or title loans based on the value of your vehicle can get you cash today. Call, click or stop by.

Photograph of author Joseph Priebe

Joseph Priebe

Joseph Priebe takes pride in assisting audiences with his articles to help them make sound financial decisions.

With over ten years of experience writing financial content his goal at CASH 1 has always been creating engaging and easy-to-digest information for anyone searching for immediate or long-term monetary solutions.

When Joseph is not writing about personal finance, you can find him photographing the Southwest United States with his 4x5 Graflex Crown Graphic camera. He is based in Phoenix, Arizona.