Do you borrow or lend to family or friends? It can be tempting to ask friends or relatives to lend you money. But you need to think carefully about whether you can afford to repay it and can cope with what might happen if you cannot.

Pros and cons of borrowing from family and friends

Borrowing from a family member can provide emergency money and help you avoid forms of borrowing with very high-interest rates.

If both parties are certain, it will not harm a relationship with a family member if you do not repay, this is a good option as it is normally interest free.

If you are borrowing from a friend, be aware that if you do not repay, this could end the friendship.

Work out a budget first

If you want to borrow from a family or a friend, make sure you draw up a budget beforehand, to see how much money you have left after paying your current living expenses.

As part of this, look at your current account and credit card statements from the last three months.

What if you cannot afford to repay it?

It is always stressful if you cannot afford repayments, but it can be even worse if you are leaving a loved one out of pocket and it might harm the relationship.

That is why it is important to work out your budget and make a new repayment plan as soon as you find yourself in difficulties.

Make sure you let them know what is happening as soon as possible.

Here are some other guides that will help you if you are struggling with debt:

What to consider before lending money?

If a friend or family member asks for financial help, it can be really hard to refuse.

But there is no point getting into difficulties yourself because you want to help, or because you feel bad about saying no.

You also do not want to lose a good friend or fall out with a family member because of money.

So here are some important things to consider before lending any cash.

Can you afford it?

Take the time to work out your own budget before lending to anyone.

Can they afford it?

Do not be embarrassed to encourage the would-be borrower to work out their budget as well.

It will be less awkward to do so before you lend them money than once they find themselves in difficulties.

What will you do if the borrower cannot pay?

You might be confident the person you have lent money to will be able to pay what they borrow back in full, but you still need to consider what you will do if they cannot.

This is a deeply personal decision but one you should think about before handing over any cash, no matter how sure you are that they will repay you.

How formal will the arrangement be?

It is a good idea to get something in writing when you are lending to family members.

Having a formal agreement in place can protect you. It is hard to think about, but if the borrower died with the debt unpaid, you would need proof to claim from their estate.


Until next time.

The MoneyShop Team


This article has been prepared for information purposes only and it does not constitute legal, financial, or medical advice. The publication, journalist, and companies or individuals providing commentary cannot be held liable in any way. Readers are advised to seek legal, financial, or medical advice where appropriate.