Borrowing from Relatives or Friends: Advantages and Disadvantages

Borrowing from Relatives or Friends: Advantages and Disadvantages

Getting some extra money for your personal needs or big purchases often seems hard and leads right into another debt. Seriously, why borrowing is a way better option than requesting a loan?

There are some core principles when asking people to lend some money: speak with an accountant before, always agree on the repayment terms, act mindfully on your social media platforms (yes, and we’re serious!).

The small personal loan is the alternative you can look at. According to official statistics, 537 billion dollars was borrowed at financial companies in January 2020. If borrowing from relatives or friends is still the most advantageous variant, here are some benefits you’ll get from it!

  • “Zero” interest rate – when a lender is not a good entrepreneur or just wants to help you without any additional fee, consider yourself lucky! That way you’ll have money upfront with no surprise when a repayment date comes. It’s a classy thing, so you can both agree on a compensation amount or no interest at all; 
  • Flexible service – having a good financial reputation and a sustainable income, you can ask for money easily. Friends are better than banks or any online lender; they’ll not threaten you with the final date and a percentage. If you get an issue, requiring moving a repayment date, another person is usually more forgiving and adjusting to new terms;  
  • Extra cash – well, that’s what you’re aiming for, right? A serious advantage you can use for covering debts, make bonuses to a savings account or use in emergencies, if necessary. On the contrary to banks and Internet providers, you can get even more money before the first loan is repaid. But if your debt is not big, you can get an easy loan online and cover it.
  • Trust is real – no need to worry about the consequences when you’re in trouble with debt. Sometimes small talk is enough for a good friend to understand your current problems and just move on. Here’s a tricky part – do not borrow from people, who are also in a tough financial situation; there will be more demand, strict terms and no possibility to prolong the repayment;
  • No formal procedures – you’re already qualified; you’re not supposed to list all the sources of income, draw the financial plan or get proof about your job. You get a chance to pass the qualification process easily, without even a passport involved. Asking a friend for money is a better deal if you need some amount shortly without hesitating; 
  • Improving a relationship – don’t forget that with a bad end of your deal the friendship is effectively ruined. But when it goes as planned, with terms agreed on both sides, and you have no troubles repaying, a person will have more respect for you next time. They would be more likely to help you again in case of another bad situation. After all, demonstrating a great responsibility for the first time makes you a reliable friend to deal with;
  • Deduct a pressure – as said before, there will be no calls or emails reminding you the end date is soon. If borrowing from a family member (more likely, your parents or grandparents) you can feel mostly emotional guilt, as they drive you to act responsibly in the future. A good life lesson, isn’t it? Most people, who borrowed from relatives for 1-2 times, start to plan their budget effectively and never want to repeat this experience; 
  • The lender is a forgiving type – we’ve all had the worst times, reaching a bottom with finances. In this case, you barely have some amount to buy groceries and pay rent; what to say about covering debts? Use this “prone” wisely, not as a rule, but as a clever exclusion. If you’ve prepared for such a tough conversation and have stable arguments, a good friend will understand. Some parents also tend to forgive their children’s loans as a part of a gift for college graduation;
  • Convenient option – half a “prone” and half a good tip – remember to discuss the terms from the very beginning. The credit checks are not required, but make a person you’re lending money from fully aware of your situation. Be concrete and honest; the other time may not come if you’re not a responsible borrower;
  • You save and can double the income – mostly refers to people launching a business. Did you know, that nearly 38% of startups appeared just because of money from friends or family? Or that 6% of new buyers used the borrowed money for a very first house? With all these benefits you can consider extra cash from friends as a way to improve your financial status. And building a business has never been so profitable using only bank credits. 

Of course, you should think twice before asking anyone. Evaluate your situation; is it so bad or you just need to wait till the next paycheck? Remember you escape formalities, but you get more responsibilities. Use them quite wisely. 

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