At one point or another, we’ve all had to borrow or loan money to those close to us. In case one cannot access a loan from a banking institution, the second idea to mind is borrowing the money from family or friends. When done correctly, family loans can serve both individuals. Nonetheless, there may arise issues of strained relationships, uncomfortable situations and misunderstandings. In the case that someone owes you, get more info on how to get back the money you loaned out.
Advantage: Easily Flexible
At times unexpected natural calamities may make it hard to manage your financial needs. If you seek funds from a bank, you get charged extra fees in case of late payment. With family and friends, you agree on a more flexible measure and are more considerate about life events.
Advantage: Interest Income
When seeking a loan from a credit union or bank, the interest rate makes sure the deal is profitable for the lender. If you lend or borrow from someone close to you, the benefits will favour them rather than a bank.
Advantages: Lower Interest
When a lending institution is not convinced you will pay back a loan, they will probably charge you very high-interest rates. A loved one who trusts you will offer the same credit at a shallow interest.
Disadvantages: Shifting Power Dynamic
The money will change the relationship! When in debt to a family member, they may feel obligated to exert control over life. They may begin to criticise your lifestyle decisions and spending manner. Some may go as far as requesting to view your banking data.
You can make complete payments on time but still, end up getting the guilt trip.
Disadvantages: Messed Relationships
If you are in desperate situations, your loved one may feel compelled to help you by offering a loan. Nonetheless, some people are not comfortable with the situation but pretend to have helpful intentions. This can cause discomfort during family gatherings and create a lasting tension on your relationship. To avoid this, keep your lender in the loop on when you may pay them back and if there are any delays to expect.
Disadvantage: Limited Legal Protection
When working with a financial institution, it is required to offer you the cash and terms lined out in our loan agreement. A friend may decide to modify the payment plans halfway through the loan. For clarity, create a loan agreement that explains the terms and conditions of the loan.