Throughout our lives, many of us will experience financial struggles, whether that’s because of a period of unemployment, an emergency expense or because of debt repayments.
These can be worrying times, but thankfully, there are a few options that we can try if we find ourselves in financial hardship.
A pay day loan could be a good option to help in an emergency, as well as short-term loans, and unemployment or low-income benefits could also be advantageous.
Below, we’ll explore our thoughts on whether you should borrow money from your friends and family.
When can you ask for a loan?
Asking your family and friends for a loan can be difficult, and you should weigh up whether you think it is worth it before approaching the subject.
Asking for a loan from your family could be acceptable if you are looking to take out a mortgage on a house and you need help with a deposit, as they can act as guarantors for you, they may even be able to help you put some money towards the down payment.
If you are struggling to make ends meet, and you cannot be approved for a loan, asking your family for help may be advantageous too so that you do not end up in financial difficulty.
Asking for a loan from a friend is risky, borrowing money can lead to miscommunications and cracks forming in the relationship – it may be best to steer clear of borrowing money from friends altogether unless it is truly a last resort.
What are the advantages?
If you’ve found yourself in financial difficulty, asking to borrow money from family and friends may be an option, and there are a few advantages that come along with this which we will look at in more detail below:
- Flexibility: Provided that your chosen family member or friend agrees to lend you money, there is a greater chance for flexibility when it comes to different loan amounts than you would find applying through your typical bank or direct lender. You probably won’t need to provide evidence that you are creditworthy enough to be approved for the loan, and therefore you can choose a payment option to suit both of you.
- Lower interest or interest-free: When you take out a personal loan from a bank or a lender, you may be met with high-interest rates depending on your credit score and credit report. Borrowing from friends and family means that you will be able to settle at a more reasonable interest rate, or they may not charge you interest at all.
- Repayment period: You’d have to pay back a traditional loan within the time frame set out by the lender. When borrowing from friends or family, you will be able to negotiate a timeframe that is most suitable for you both, which means you could benefit from a longer-term repayment. Just make sure you’re honest with whoever loans you money about how long you think it will take you to pay them back.
What are the disadvantages?
Although some advantages come along with borrowing money from family and friends, there are some obvious drawbacks too, such as unclear boundaries.
Because your family or friend is not a lender that has to stick to strict guidelines, boundaries may become blurred and if you do not communicate properly, it could lead to unclean terms.
It is also very difficult for the lender to ask the borrower about the money they owe them if they are related or a close friend – it can lead to them feeling awkward and worried about asking.
In the worst-case scenario, borrowing money from your family members can lead to a damaged relationship, and feelings of resentment and mistrust may bubble up if you do not make the repayments.
Options to consider
If you are not sure about whether you should ask friends and family for help if you find yourself struggling financially, there are other options that you could choose to help boost your finances without putting relationships at risk.
- Bad Credit Loans: There are lenders that can provide loans to suit all types of circumstances, even if you have bad credit. These lenders tend to base their decision around your income and if you can afford to pay them back. These loans are handy in the short term if you have had trouble qualifying for loans in the past.
- Short-term loans: Short-term loans are like bad credit loans in the way that they are based on your specific circumstances rather than your credit score, and if you are faced with an emergency expense or unprecedented circumstance, a short-term loan could be an option for you.
- Benefits: Councils offer benefits for those on low income that fit specific sets of circumstances so if you’re struggling to make ends meet, instead of borrowing money you could see if your local council could help.