words Alexa Wang

Getting into debt is an awful experience. From the stress that often comes with trying to deal with debt management companies to the constant anxiety a person feels about being ever further ‘in the red’, it’s a deeply unpleasant way to live.

But for many of us, debt of some sort seems unavoidable. One in four families in the UK have less than £95 in savings, which means that an unexpected car bill or expensive trip to the dentist could mean many of us having no choice but to borrow money in some way.

But which way of borrowing money is best? Overdrafts, credit cards and payday loans might be the first options that spring to mind, but for some people, to borrow money from friends and family is a better way to go. If that’s something you’re considering doing, here are some key do’s and don’ts to keep in mind.

Before you approach your loved ones

Before you ask your friend or family member if you can borrow money, show that you’re responsible and considerate of their financial situation by answering some of these questions in your own mind:

Amount: how much are you going to ask for? And do you intend to disclose the reason for the amount?
Timeline: how long do you think it will take you to repay the loan? How much can you afford to pay each week or month? Where will this money come from?
Worst case scenario: what happens if you can’t repay the loan? What will the consequences be?

Do: consider your options carefully

If you’re lucky enough to have lots of family and friends you can turn to during a financial crisis, give some careful consideration regarding who to approach. For some people, borrowing from a family member is preferable to borrowing from a friend, but for others, approaching the bank of mum and dad or the in-laws really is the last resort.

Think about the strain borrowing money could place on your relationship, or at least be prepared to anticipate a minor shift in how you regard one another for the duration of the loan. Choosing carefully could see you borrowing money very comfortably, but be careful of rushing into it with the wrong person.

Don’t: hold back information

It can be uncomfortable enough to admit that you need a bit of help financially. But it’s often harder to explain why. Disclose as much as you’re comfortable sharing, but if prompted by the person you’re asking to lend to you, it’s best to be completely transparent.

Also, be honest about exactly how much you need – your request will be better received if you’re upfront about the figure you need to borrow, rather than getting the green light and then asking for more.

There’s nothing to be ashamed of when it comes to borrowing money, but taking the decision to lend to a family or friend isn’t something your loved one is going to do easily. They’re going to need to consider their financial security, the wishes of their spouse or partner, and their financial commitments in the future. If you’re asking them to put strain on any of this, they need to feel confident that you’re not holding back information that could might have caused them to reach a different decision had they known.

Do: draw up a formal arrangement

You needn’t turn this situation into anything that feels too legally binding, but it’s good practice (and good manners) to reach a deal in writing. Simply write a paragraph or two about the exact amount of money to be borrowed, who is borrowing the money, who is lending the money, and the terms and conditions you’ve both agreed to. You should also detail the repayment schedule you’ve agreed on in here too. You could take a look at an unsecured promissory note template to ensure you have all of the necessary elements included in your agreement.

Also, agree upon a set of terms and conditions before you go ahead and accept the money. Detail these in the written agreement, including whether or not you’ll pay interest (and if so, the exact amount), as well as the deadline to have the loan repaid along with an installment schedule.

With any luck neither of you will come to rely on this written agreement, but it’s better to have one. Relationships can sour for lots of reasons, and having a copy of your formal arrangement – each – could prevent a lot of stress in the future. If nothing else, it will show that you have a real commitment to paying the loan back in full, and that you’re a trustworthy person.

Don’t: take advantage

Doubtless you have every intention of honouring the agreement you’ve made with your loved one, so this piece of advice is just something to acknowledge: when borrowing money from friends and family, it’s more important than ever to stick to the plan and not take advantage of your relationship with one another. You might not harm your credit rating if you skip a payment, but you will damage your relationship.

Set reminders on your phone to ensure you always pay them back on time, and don’t let other aspects of your relationship to filter into this one. For example, having an argument over an unrelated issue does not negate the commitment you’ve made to them in this regard.

Do: repay early wherever possible

Of course you’ve agreed to pay the loan back over a certain duration of time via specified installments. But if you find your financial situation improves and you can afford to pay back a lump sum, don’t delay your repayment longer than necessary. If you’re able to pay the loan off early, you’ll show yourself as being a man or woman of your word, and someone who is respectful of your friend or family member.

Don’t: lose track

If you’re paying your friend or family member back by transferring money between bank accounts, you’ll have a paper record of some sort to refer to. However, if you’re paying your loved one back in cash, it’s very important that you keep a note of what you’ve paid, when you paid it and how much is outstanding. In fact, regardless of the method of repayment you choose, it’s a good idea to keep an up-to-date spreadsheet so that you can be sure of what you owe on any given day. Don’t just rely on your family member to do this for you – you need your own records in case discrepancies arise.

Follow this advice if you want to borrow money from your friends and family without ruffling feathers.

Should you ever borrow money from friends & family? – words Alexa Wang