Times are tight, and often the quickest path to some much needed cash is through a loan from a friend or a family member. Do what you must, just go into such arrangements with your eyes open (and, if you’re a potential loan target, maybe with your wallet closed).
For starters, know what’s at stake when you turn to a familiar face for some quick cash. When you borrow $5,000 from a bank, chances are you won’t have to see your banker across the table from you on Christmas Day, or at the next family reunion. But when you borrow from Uncle Sidney, and haven’t paid him back by the agreed-upon timetable, that family visit may be as pleasant as a root canal.
Worse, if Uncle Sid gets sick and passes away while you still owe the money, you’re no longer dealing with just family – you may be dealing with sharped-fanged lawyers acting on behalf of your uncle’s estate.
So how to balance family and the need for a fast financial boost?
Start by writing a pro and con list. The “good” list might include the benefits of getting your hands on quick cash, the ability to (probably) avoid a high interest rate (or any interest rate at all), and the absence of any negative impact on your credit score if you’re late making payments. On the down side, the list might include the potential awkwardness of regularly seeing, face-to-face, someone you owe money. Or, it might lead to strained family relations if you don’t pay back the debt, or go back on your word by paying it late. Then there’s the likely absence of a written contract, spelling out the terms of the loan, and how and when it will be paid back. Between family members, legal contracts are usually an afterthought. Without a contract, agreements become muddled, and loan payments can even wind up un-enforceable if the terms aren’t clearly spelled out.
For the lender: