Debt Options: Should I Borrow From Friends and Family?
When you have bad credit and you don't like the options out there for loans, you could consider borrowing from a friend or family member.
While it is highly unlikely anyone you know will run a credit check on you, asking for a personal loan from a friend or family member comes with some challenges you should consider before going that route.
Dangers of Borrowing From Friends
Borrowing $10 or $20 is one thing. But loans in the hundreds of dollars, or thousands, can be significant and come with a lot of attached stress.
Some pitfalls include changing the nature of the relationship between the lender and borrower. What if you borrowed from your best friend or a sibling and you had a hard time paying them back? That could create some problems.
Put Everything in Writing
One solution is to put the arrangement in writing and handle it just as any other lender would. There should be a payment schedule and some discussion about what would happen in the event the borrower did not keep up with payments. You should also discuss paying interest on the loan.
Another scenario is giving the lender an added sense of power over the borrower. If your cousin lent you $5,000 and then saw you eating out every night, would they pass judgment? Would they question why they lent you the money in the first place? Lending is usually an impersonal business deal. But having someone who sees you all the time and watches how you use money might end up second-guessing or lecturing you about how you handle your finances -- something that could quickly sour a good relationship.
It’s OK If They Say No
Be prepared to get no as an answer. Consider the position you are putting a friend or relative in by asking them to borrow money. It might not be that they don't want to help you out, but that they realize how awkward actually loaning the money could become. Or, it is also possible that they aren't in a position to loan out money and having to reveal that could be yet another source of discomfort.
Always Pay Your Friends or Family Back
Assuming everyone in the transaction is above-board, responsible and able to deal with the situation in a completely business-like fashion, having that friend or family member in a position to lend could be a way to get some cash to help you pay off a debt, make a purchase or start a business. Whatever it is you need the cash for, remember that repaying the debt to someone you know is no less important than it is repaying a bank, mortgage company or any other lender. You won't find a mark on your credit report one way or the other for this loan, but your friend or relative went out on a limb to lend to you when no one else would and they deserve some credit for that.