As well as obtaining a loan from banks and lending companies, for whatever reason, you also have the option of asking the family or friends for assistance. Unlike when borrowing on an official basis, there are no set of guidelines on how will they charge the interest, nor would there be any repayment schedule or loan terms.
So, here are the reasons why you shouldn’t borrow money from family & friends
1. Strain on Relationships
While you might be in dire circumstances, a loan by a family member to help you, might not sit all that comfortable with them. Even though it might be left unsaid, the lender might even resent the fact that you are trying up their cash and even possibly worry that they won’t be repaid easily.
This can even cause an unnecessary strain on the relationship. If you want to avoid this issue, then you should be realistic and professional about the loan. Set up repayments schedules and keep the communication lines open, should be there any late payments.
2. Changing the Power Dynamic
Money changes relationships. If you are in debt to a family member, that person might feel they have the right to exert more control over your life. It may even get to the point where the lender criticizes your spending habits and lifestyle.
They may even ask to look at your bank statements. While sticking to the repayment schedule will ease some pressure, the whole situation may still put you a guilt trip.
3. Limited Legality
A loan taken via a bank or a lending firm is done with the help of a contract with all the terms outlined in the agreement.
Borrowing from a family member might mean that a person can easily make changes to the loan amount or repayment terms at any time. To avoid this, there should be a loan agreement, complete with a repayment schedule, and even an interest rate.
4. Lack of Priority
As the lender is a friend or a family member, it is easy to take advantage of that situation. This can cause abuses the friendship by not treating the loan with any urgency. If a repayment schedule has not even arranged, then repayments may lose their importance.
Just like borrowing from an established lender, there are really no repercussions for the borrower. No higher interest rates, no penalties, and certainly no impact on the credit rating. With little or no motivation and no financial or legal threat, the loan can be put in the not so urgent basket.
5. Requesting to Repay the Loan
There is always a certain amount of embarrassment and discomfort if the lender starts making demands about the repayment of the loan.
This is not an easy situation and can cause an issue with the relationship, regardless of whether they are a relative or friend. It does not only talk about the loan that stops; all other communication usually stops as well.
6. Avoiding Family Get-Togethers
Even though other family members or friends may not know that you borrowed money, the two people who are involved in the deal are aware. As this can make family gatherings a bit awkward. Even if it just friends, that slightly awkward feeling persists.
The situation can even get worse if the lender has revealed the loan to others, or even discussed it with others. As the borrowers, it can be embarrassing to realize that other people know your financial problems.
These are some of the reasons why you shouldn’t borrow money from family & friends. Here are some more articles which you would like to read!