The Right Way To Borrow Money From Friends and Family

Borrowing money either from family or friends is not good idea. But that’s the easier way to borrow money rather than getting loan from financial institution.
It ain’t easy to make decision but give you some idea on how to borrow money from friends and family as below:-

1) Present your case

When you borrow money from a bank, you have to fill out an application, lay out your entire financial situation, and sometimes even put up collateral. Just because you have a personal relationship with the person you’re borrowing money from doesn’t mean you should bypass this step.

three-generation asian family talking in living room.

In fact, preparing a short presentation that outlines why they should lend you the money can help them see how serious you are about the loan and understand why you need the funds. Include details like what you’ll use the money for, how long it’ll take you to repay the loan, and how much interest you’ll pay in return.

2) Set up clear repayment terms

“I’ll pay you when I can” shows that repaying the loan is not a priority to you. This is a big deal considering nearly three quarters of people who borrow money from friends or family never pay the loan back in full.

Breaking down exactly how you’ll pay your loved one back will drastically increase their confidence in both your ability and willingness to make payments. Include details like when you will start to make payments, how much you’ll pay back each month, how you’ll make the payment, what the monthly due date will be, and the date when the loan will be fully repaid.

If you really want to go the extra mile, show them your monthly household budget and how the monthly loan payments will be easily affordable for you.

3) Have a backup plan in case you fall behind on payments

There’s a chance that you won’t be able to repay your loan on the schedule that you agreed to. Have a plan in place that dictates what happens if you miss a payment.

Offer to pay a late fee in the event you fall behind on payments. The late fee should increase over time, meaning that the later you are the more you pay in fees.

If you want to show how committed you are to repaying the loan, you can also offer up collateral. Let your loved one hold on to a valuable item that you own like a piece of jewelry until you pay back the loan in full.

4) Sign an agreement

Loan Agreement

All of the details discussed up until this point should be written down and put into an agreement that you both sign before the funds are disbursed. Once signed, you should both get a copy of the agreement. If any conflicts arise, reference the loan agreement rather than arguing with someone you care about over what you initially agreed to months or even years ago.

5) Set up a recurring transfer for payments

Most banks allow you to set up recurring transfers to another bank account. As soon as your repayment period begins, automate the repayment process by setting up a recurring monthly transfer to your lender’s bank account. Doing this will ensure that you don’t accidentally drop the ball on making payments.

Source :-Forbes

How about that? I think it is good idea as it could gain trust from your friends and family. But don’t break the rules. Pay or you will lose them.

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