Risks Of Borrowing Money From Family

As we pointed out yesterday, there are benefits to borrowing money from a family member. Today we will point out the risks. The main benefit is saving money on interest or other loan costs. It also may be the only way you can borrow money to accomplish an important goal. Unfortunately the risks of borrowing money from family can be severe and the benefit may not outweigh them.

Potential Risks Of Borrowing Money From A Family Member

Ruining Your Relationship: The most obvious cause for concern is the potential to ruin your relationship with whomever you borrow from. You cannot predict all of the things that may go wrong when it comes to paying them back. Maybe it’s the loss of a job for you or them. Are they lending you money because they can afford to live without it? Although this decision is on the burden of the lender and they shouldn’t agree unless they are sure…it is prudent to think through some of these things yourself.
Defaulting On Your Payment: Typically, no one takes out a loan thinking they won’t be able to pay it back. However, things happen and it doesn’t always work out as agreed. What situation will your friend or family member be in if you default or pay late? While this often leads to a strained or bad relationship, it can also lead to financial chaos.
Undue Pressure: Borrowing money from a family member doesn’t give them a pass to meddle or track your every move. Unfortunately it can seem that way or feel that way to both parties. Do you really want to stop by to see your family member wearing a new shirt or drinking Starbucks and leave feeling criticized or judged? Even if you think you can guard against this, you may not be able to.

What If A Family Member Asks To Borrow Money From Me?

We will cover this in our blog tomorrow. Stay tuned for some precautions we suggest. We will also give you tips on how to make this difficult decision!