If you’re having trouble getting a loan through traditional means, i.e. if you have bad credit, one of the options you have is to run to your family and friends for help. Especially if you need the money bad and quick, they can hardly say no if only they have the cash that you need. However, there are two sides to borrowing from your loved ones.
The Loan Is Interest-Free
In most cases, people close to you will be willing to lend you the money without charging any interest for it. If your finances are on the rocks, this will help you attend to immediate needs without sinking deeper in debt.
The Repayment Terms are Quite Flexible
Your loved ones will generally be more lenient and understanding than banks and other lenders. If you don’t have the money yet, they would happily give you an extension and allow you to pay them when you’re already back on your feet. This way you can prioritise other more urgent and expensive obligations that are continuously pulling you down.
They Won’t Normally Credit Check You
If you’ve messed with the credit you had before, chances are you will be refused a loan from banks right off the bat. If you looked for other options, you’ll definitely have to pay a very high price. If you borrow from people you know, they will most definitely help you out – as long as they have the capacity to do so – without any outrageous interests or questions asked.
You Can Get More than Just the Financial Support
Lastly, when you borrow from your loved ones, they will generally be very generous about it, not just in terms of financial support, but moral support as well. Aside from lending you the money, they will try their best to help you succeed in whatever it is you’re planning to do. You will feel that your success is their success, and your failure is their failure, so they will do everything in their power to assist you in all ways possible.
It is Often Uncomfortable
When you borrow money from people close to you, you often feel overly indebted to them, like you feel burdened to repay them in all ways possible aside from making the financial payment itself. It may also raise self-esteem issues, such as the feeling of not being self-sufficient and depending on others for financial support.
When you deal with actual businesses, on the other hand, the only worry is about meeting the payments. Harbouring these kinds of feelings may cause unnecessary mental and emotional stress.
You Are Obliged to Keep Them Informed and Involved
When you borrow from friends or relatives, you generally would want them to feel that the money went to a good cause. There’s also a feeling of having them a part of everything that’s going on with the money. If you used the loan for a business venture, perhaps, there’s this added pressure to inform them of your progress. In some cases, you may also feel obliged to let them be a part of it, so you may sometimes feel powerless with regards to decision-making.
You Run the Risk of Ruining What Was Once a Good Relationship
While you certainly wouldn’t want to break that trust that was given to you, things happen. If you find yourself unable to pay back that loan, for instance, if the business fell, you will forever be guilty about the money you borrowed, which can affect your relationship. Your friend or relative will also feel reluctant to help you financially in the future.