BORROWING MONEY FROM FAMILY
If you are in need of some extra cash, consider asking a family member to lend you the money before you apply for a loan. However, follow the input below to determine if borrowing from family is a good idea for you and how you can conduct yourself to ensure a comfortable situation for everyone involved. Another option would be to explore peer lending options.
- Look to borrow money from family only for an emergency and not for taking a vacation or for buying a material object. To put tension on a family relationship over money should be one of the final options you come up with, not at the beginning of your "want" list.
- Be selective when choosing a family member to approach for borrowing. You don't want to ask someone for money that is already in a financial bind themselves. Try and ask someone that you know will have some extra cash to lend.
- Be professional. Borrowing from family should be treated the same as if you were borrowing from a bank. Make sure all questions are thoroughly resolved by both sides so that you are comfortable as a borrower and your relative is content as a lender.
- Create an agreement/promissory note that details the specifics of the loan as agreed upon by both parties. Make sure you include the interest rate if any, expected monthly payments, penalties and verbal boundaries. Being that you are borrowing from family, it is probable a good idea that you add some comments on confidentiality, so that the rest of your family is not made aware of the loan.
- Put up some sort of collateral as good faith. In the event that you go bankrupt your family member will be on the list of creditors to be paid as long as there is collateral involved in your loan. This will create a comfort zone for your lender when loaning you their hard earned money.
- Make sure you both parties understand the tax implication of borrowing and lending money. Specifically determine if the loan is going to attract IRS attention or interest is going to be charged and would like to be deducted by the borrower.
- If you are able to, pay off your debt earlier than the agreed upon schedule. The credit card company will not call requesting how you paid for that spur of the moment vacation while you still owe Uncle Lenny.