8 Rules For Borrowing Money From Friends And Family

With the economy in pits and job losses mounting (December is expected to be another horrible month), a lot of people out there are going to need to borrow money to pay the bills. Unfortunately, few banks are going to be willing to lend you money without a steady source of income and even funding from peer-to-peer lending sites such as Lending Club (aff) is likely to dry up (although it never hurts to try). For many, that leaves friends and family as their only source of cash.

Those close to you are, of course, the most likely to be willing to help out, but they’re also the most dangerous people to ask for money. Should things go wrong and you end up unable to repay what you’ve borrowed, you run the risk not only of financial hardship but also of ruining previously-strong personal relationships and perhaps even starting an old-fashioned family feud. Because of this potentially disastrous pitfall, there ought to be rules-of-etiquette in place to govern borrowing from friends and family. I couldn’t find any on the internet, so I’ll make some up myself. Let this rules of etiquette be forthwith etched in stone, forever and ever.

Rules For Borrowing From Friends And Family

• Borrowing Should Be A Last Resort – Don’t even think of going down that path until you’ve exhausted every other possibility including cutting the phone/cable, eating every meal at home, looking for part-time work, and applying for unemployment. Asking your parents or a sibling for cash when you don’t really need it will undoubtedly stir resentment and give your a reputation for being irresponsible.

• Spell Out Exactly What The Money Will Be Used For - Many people would be glad to help so long as they knew the money wouldn’t be spent foolishly. Borrowing to pay the rent is acceptable and worthy of pity. Borrowing to pay off last year’s vacation is not. Make a request like that and you’re likely to be the topic of many a private conversation about “irresponsible cousin Vinny.”

• Stick To Your Word - If you tell everybody the proceeds from their loan will go towards paying for little Sarah’s cancer treatment or fixing the family car so you can drive around looking for work, stick to your word. If your generous benefactors find out you’re blowing the cash on beer and lottery tickets instead while your car sits rusting in the drive, you can be sure they’ll never lend you money again and will resent you for the rest of your life. I hope you enjoy Christmas dinner at the kids table, because none of the adults will speak to you.
• Get It In Writing – Borrowing from a family member should be no different than borrowing from a bank. Write up a contract specifying the amount to be borrowed and terms of repayment, including the interest rate, due date, and size of any periodic payments that are to be paid. Then, both of you sign it. In blood, preferably. Sounds cooler.
• Avoid A Lump Sum Payment At The End – Sure you have three years to repay the loan, but avoid repaying it as a lump sum at the end. This almost never works out. Instead, calculate a monthly payment, write it into your contract, and stick to it. Make paying back the loan a monthly bill just like your mortgage and credit card bill.
• Keep It All Business – The key to avoid ruining personal relationships over money is to keep it all business. Do not expect anybody to cut you slack just because you happen to share a few genes. Do not, under any circumstances, even ask. This is a business transaction, pure and simple. Keep your personal feelings out of it. If you default on the loan, acknowledge your lender’s right to take you to court over it. It’s part of the game and crying fowl over it will only serve to drive a wedge between family members.
• Avoid The Appearance Of Wastefulness While The Loan Is Outstanding – This is an important one. If you borrow $3000 from Uncle Fred and then go out and purchase a $1000 television a few months later, you give Uncle Fred the impression you don’t really take your debt to him seriously. Even if you are completely current on your monthly loan payments, Uncle Fred will resent your purchase, right or not. If you have an extra $1000, give it to Uncle Fred to pay the loan off early. Remember, Uncle Fred did you a favor when nobody else would. He is not a bank and doesn’t have the luxury of merely writing it off as a “bad loan.” The consequences here are far, far more severe and will touch every aspect of your life. Besides, he probably needs the money back to pay his own bills.
• DON’T BORROW MONEY FROM FAMILY OR FRIENDS! – What are you, stupid?