When money gets tight, it’s natural to reach out to loved ones for help. About 30% of households hit by income losses during the pandemic looked to friends or family for a financial hand. While that support can be a lifesaver, it can also stir up some drama and hurt feelings. If you find yourself in this situation, it’s best to tread carefully. That’s why we’re here to share some down-to-earth tips to make sure things go as smoothly and respectfully as possible.
Consider Alternatives Before Borrowing
Asking a friend or family member for financial help can feel awkward and may put the other person in a difficult position. Before making the ask, consider all your alternative borrowing options. Those with good credit might consider a personal loan or credit card to cover the cost. While interest rates may be higher, it may still be a manageable way to get through it without asking friends or family for money.
Consider the purpose of the loan. Borrowing for non-essential items or experiences may not be wise. However, if you’re facing an unexpected expense like a costly home or car repair, or you’re at risk of eviction, borrowing from someone you know could be a viable option.
Determine How Much You Need
Before you approach a loved one for a loan, run the numbers to get a clear idea of how much money you need. If you’ve suffered a job loss, for instance, eliminate any unnecessary expenses from your budget and factor in what you can expect from unemployment benefits. You may find that you don’t need to borrow as much as you initially thought.
Be realistic in your calculations to avoid having to ask for more later or borrowing too much, which can lead to financial strain and potentially damage your relationship with the lender.
Choose the Right Person to Ask
Consider the financial situation of the person you’re thinking of asking for a loan. A retired parent on a fixed income may not be the best choice, while a friend with a well-paying job and substantial savings might be more able to help. Be careful not to make assumptions about another person’s finances and avoid asking someone who may jeopardize their own financial health in order to help you.
Also consider your relationship history with the potential lender. If there’s tension or volatility, asking for a loan could exacerbate these issues. If you’ve borrowed money from this person in the past, consider whether it was a positive experience for both parties.
Create a Loan Agreement
A loan agreement, often called a promissory note, is a legally binding document that outlines the terms and conditions of the loan. Having things in writing can help keep both parties honest and prevent misunderstandings that could harm the relationship.
By signing a loan agreement, you’re acquiring the debt and giving the lender the power to take you to small claims court if you default. This may seem extreme, but it underscores the seriousness of borrowing money from friends or family.
Make Timely Repayments
Whether you’re borrowing money from a bank or a loved one, making your payments on time should be a priority. Your loan agreement should outline how much you’ll be repaying each month and when. Consider setting up automatic monthly bank transfers to ensure you don’t forget.
If you encounter financial difficulties during the repayment period, communicate with the lender as soon as possible, especially if they’re relying on your monthly payment. Your willingness to find a solution may be enough to keep the relationship intact.
Maintain a Healthy Emergency Fund
The potential complexity of borrowing from someone close to you underscores the importance of having a healthy emergency fund you can draw on when disaster strikes. Maintaining strong credit is equally important as it can help you qualify for reasonable financing so that you don’t have to ask friends or family for money.
Balancing Support and Independence
During financial challenges, seeking help from loved ones is common but complex. Before reaching out, explore alternative options and assess your needs carefully. Choose the right person to ask and consider establishing clear terms. Prioritize timely repayments and maintain open communication. Building a financial safety net and maintaining good credit can reduce the need for assistance. By handling these situations with care, you can navigate difficulties while preserving relationships.
