You've probably been warned about borrowing money from family members before. While this may seem more convenient than dealing with a bank or a lending institution, some experts said it might be more trouble than it's worth.
A survey from Bankrate showed that 35 percent of Americans who either lent or borrowed money from a family member ended up with a negative outcome. They damaged the relationship with that family, impacted their credit scores, or blew the money completely.
Although you can indeed turn to family members for financial help, especially during a pandemic crisis, here are three reasons why borrowing money from relatives is not a good idea:
1. The vague terms of repayment could be a source of resentment.
When borrowing money from a family member, you could assume that the repayment terms are more flexible than existing financial institutions. However, this vague repayment term could become the source of resentment that could cause cracks in the relationship.
According to relationship counselor Dee Holmes, some adult children who borrow money from their parents are likely not to pay these back right away. In some cases, the parents might feel that they have the right to encroach on their children's spending choices since they are the source of the funds.
Since there is no formal agreement about the payment terms, disputes and arguments could also arise. Accusations between family members may come out, and regretful words could be said in the process that the family might not recover from.
2. You might not be able to live with the feeling of indebtedness.
Some family members will not hesitate to mention that you borrowed money from them, other relatives, or even family friends. This could turn into an embarrassing moment, especially when you're not used to that feeling of indebtedness. It's worse if you are a couple and your partner has not been comfortable with asking for financial help from relatives to begin with.
Borrowing money from family members will always have that emotional link, so it won't be easy to separate logic from feelings.
3. Family members will gossip about each other.
You might need the money for a very personal reason, but your relative might not understand why you have to keep it on the down-low. Don't count on family members to keep quiet about this, though. Worse, if you have upset or disappointed your aunt or uncle for failing to pay them back, they will likely tell your cousins or parents about it.
Suppose you're not comfortable with this situation. In that case, it might be good to look for other alternatives or reconsider approaching the bank to do away with a potential emotional fallout with a relative.
Analyst Andrew Selepak said that you may still borrow from a relative based only on the amount that you can confidently repay as soon as possible. However, he also advised to put things in writing and keep the necessary documents of payments made. If you're in a really bad situation, consider talking to an accountant who can help manage your finances.
