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Borrowing money from family or friends certainly has pros and cons that you should consider before moving forward. Borrowing from friends or family could help you avoid borrowing at very high-interest rates compared to payday loans or even secured loans.

A core part of any friend or family relationship is how much you trust each other. You also want to take into account whether borrowing money could potentially harm the relationship if the total amount can’t be repaid or it takes longer to repay then you considered initially. If you don’t think this will be a problem, then borrowing like this could be a good option.

Before you jump into it make sure to consider whether your relationship is strong enough for this to work .

If you are borrowing money from family or friends

There are things you should keep in mind if you want to borrow money.

Create a budget

You should approach borrowing from family to friends precisely the same way as you would borrowing from a bank or financial institution. When borrowing from a bank or financial institution they will help determine your budget by looking at your expenses and salary and then determining how much money you can afford to pay back each month. If you want to borrow from a partner, friend or family member make sure to draw this budget up ahead of time. This will help you see how much money you have left over for repayments each month and will also include any interest payments that your friends and family might charge.

To make sure you have a complete picture of your expenditure it is a good idea to get together your credit card and current account statements from the past couple of months to really analyze how much money you’re spending. It’s also good to look over a longer period of time because you can see how many unexpected one-off costs come up that could impact your ability to repay the loan.

What are the risks?

One of the main risks of borrowing from family or friends, or any borrowing, is that you won’t be able to repay the amount each month. It can be incredibly stressful if you don’t have enough money to pay back what you owe but it can be even more stressful if you’re impacting the lives of your family and friends who you’ve borrowed from. If your family and friends are relying on the money you owe them to pay their own bills then this could damage the relationship irrevocably .

This is why a budget is important. It’s also essential to let the person who you’ve borrowed from know immediately if you’re going to have trouble repaying the loan in a particular month. Surprising them at the last minute by being unable to make the payment would not be good for a relationship. And if you are struggling paying your debts you can get professional help.

Key Points

  • Borrowing money from friends and family can be preferable to the high interest rates of payday loans
  • You must ensure to pay back the agreed money in full otherwise you risk destroying the relationship
  • Be honest with your friends and family about your financial situation before they agree to lend you money

Always get your agreement in writing

Again, like working with a bank, when borrowing from your family and friends make sure to get things written down so that you both know how much is being borrowed, the amount that is being borrowed, and any interest that might be chargeable on this loan. After you’ve written this agreement out you should have a clear idea of how much you’re borrowing and when both sides expect money to be paid.

Once you’ve got the agreement in writing and you start the loan make sure that you record every time you make a payment. You should write down when it was paid, for how much, and send a record of this to the lender each time you do. Having a formal agreement in place is to protect both sides equally.

Worst case scenario, and it’s hard to think of, if the borrower were to pass away, having this agreement in writing will ensure you can claim the money owed to you from the estate.

If you’re trying to borrow a large amount of money you should probably seek legal advice from a lawyer to make sure that the agreement is formalized.


Borrowing money from your family or friends can be a good option for those needing money, as it is based on a trusting relationship and does not risk predatory lending like other loan options.

Alternatives to borrowing money from family to friends

If you’re still unsure of whether borrowing from family and friends is a good idea other alternatives can help.

Beware of borrowing money too easily

When you borrow money from family or friends make sure that you truly know and trust the person you’re borrowing money from. The danger of borrowing money from an acquaintance is that you don’t know them that well and they could be a loan shark who is an illegal lender and could get you into more trouble.

If you are lending money to family or friends

There are factors you should take into account if you are lending money.

What to do before you decide to lend money to your friends

Personal relationships are difficult and it can seem challenging to turn down a friend or family member if they ask for financial support.

First and foremost you need to make sure that lending money would not put you in financial difficulty. You cannot help them if you cannot help yourself. You need to make sure that the money exists in your budget before you can start talking about any terms of a loan.

And on the relationship side, you need to make sure that you’re not going to lose a partner or friend or fall out with a family member if this financial deal goes wrong. You must make sure that your relationship is strong enough before deciding whether to do this.

The bottom line is you need to work out your own budget before deciding whether you can help anyone else.

If the person who’s asked for money refuses to set up a budget don’t be embarrassed to ask them to do it as part of the criteria of you lending to them.

It’s much easier to get them to do it before the loan is paid then after, especially if they’re struggling to repay the loan at any point.

What will you do if you can’t get your money back from your family?

If you’ve entered into a loan agreement then you’re probably confident that you’ll get your money back in full. But you still need to look at the future and consider what would happen if they can’t pay you back.

As part of any loan agreement, you need to talk about what would happen if the borrower cannot pay the money back. There’s many reasons that this could happen – they could have an unexpected expense like a medical bill or a car repair but they could also lose their job. On the other hand you might need the money back quicker than you thought. Make sure to discuss this ahead of time before any lending happens.

How you deal with this is an entirely personal choice and we are just offering guidance. It’s always worth thinking about these things whether you’re lending from friends, family or partners or from banks and financial institutions. Knowing what will happen if your circumstances change is crucial.

Richard Allan

Richard Allan

Richard Allan is the founder of Capital Bean and a passionate writer about personal finance, budgeting and how to save money at home and work.

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