Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk
When I was younger sponging a few quid off of your mates was one of those things you did. You paid them back on your next payday, if not then when you were flush, you’d buy them a pint or two.
As you get older you might need more than a couple of quid and asking your friends today might be a little bit embarrassing or risky as you may not want to put them in a position that they have to turn you down.
Going to family or friends for a loan is sometimes the easier option than applying for a loan through the traditional banks or short-term lenders.
In this article we will look at the pros and cons of asking for a loan from your friend or family.
Just because you are asking your friends or family for a loan does not mean you should take what you are asking lightly or for granted or any less serious than going to the bank.
You’ll need to do some work before you ask. For instance, you’ll need to know exactly how much to borrow, don’t go asking for a “around £1,000”, if it is £1,000 you need, then that is what you ask for, not £1,010 or £990.
Also, you’ll need to explain exactly why you need the loan, for what purpose, paying bills, meeting the next few mortgage repayments. If it is for a new phone when you already have one or you saw a new pair of shoes that you simply must have then it is unlikely your friends or family will want to lend you anything.
Out line how you will repay them, over what period and how much you will pay back in each instalment.
Show them how you can afford the repayments and what you will do so that you will fix your finances.
Before you ask your family or friends for a loan you may want to approach the traditional lenders like banks, or short-term loan lenders.
Most of the time when friends or family lend money to each other it is common that they will not charge each other intertest. I would recommend that you repay the loan and at the end give them extra calculate the extra as 3% which is a decent level of interest that one could get in a savings account.
If you have agreed to repay the loan in 6 months try and repay the loan in 3 or 4 months.
When you apply for a loan with the banks or an on-line lender, they will perform all manner of credit checks and affordability checks which will appear on your credit score. When you approach friends and family for a loan since they already know you there is no credit checking, but you can expect questions about affordability. They may also give more favourable payment terms than the banks and a much more favourable interest rate if at all.
Even though you are borrowing money from friends or family they may not delve too deeply into your financial affairs although I would be wise to present to them your finances so they can see if there is a likelihood that you may not be able to afford to repay them.
It is also advisable that you put it down on paper exactly what the terms of the loan happened to be, the amount, the repayment period, how much is expected on each date and that a ledger of sorts is kept recording the payments.
If you fall on hard times your friends and family will be more than willing to lend to you to get you back on your feet. If your car breaks down or you have urgent bills to pay it is likely they may offer before you have the chance to ask.
If you find yourself unable to repay at any time or you think you are going to miss a payment you are not going to risk being taken to court or receive any letters demanding immediate payment. Provided you tell them about the situation straight away and what the reasons are plus what you are doing about fixing the late repayments they will be more understanding.
If you approach your friends and family like you would approach a bank or short-term lender for a short-term loan you with all your facts and figures laid out correctly it is more likely they will agree to your request.
It is daunting to ask people you know for a loan, you risk embarrassing them and possibly yourself if they turn you down.
Your friends and family know you best and if you approach them for a loan they might ask you why you need it and why you can’t raise the money by selling some of your possessions to finance whatever it might be you are need the loan for.
Some might even tell you to wait and save up for it if you are asking for a loan to purchase something they would consider unnecessary.
Here are two situations:
Would you lend me £500 for an operation I really need?
Would you lend me £500 so that I can go on holiday?
Which one would they most likely lend you the money? Of course, they will lend you the money for the operation. The holiday they will tell you to go sit in the park if you really need a break.
If you need the money to start a new venture, then you might want to offer them shares in the new business. They will just like a bank probably ask you to produce a business plan and all other the other details that go with financing a new company.
At this point you might want to get legal advice as it can get very messy if not done correctly.
When you agree to borrow money from friends and family always make sure that you repay in full and on time as agreed when you took out the loan. They trust that you will not abuse their generosity and trust in you to honour your commitments to the loan.
Ultimately borrowing from friends and family should not be taken as a given or lightly. You run the risk of damaging a friendship or creating bad blood in the family. Before approaching them consider looking at alternative financial institutions like banks or payday lenders offering short-term loans
Debt management agencies are regulated by The Financial Conduct Authority
Many people in the U.K struggle with debts and many do not know how to start to repay them speaking to a debt advisor is one of the best things you will do along with taking action yourself by speaking directly with your creditors.
https://www.nationaldebtline.org/ and https://www.moneyadviceservice.org.uk
You should always seek professional advice when handling debt problems. Cashute are not licensed debt advisers and any information contained in this article should not be taken as legal advice. It is your Responsibility to seek out correct legal advice