Financial Troubles? How To Ask Friends And Family For A Loan
These are trying times. Many people out there are struggling with many things at once. They are trying to stay safe and healthy while trying to make ends meet. Are you one of them? Are you struggling to make payments and staying afloat because you've been fired or your hours cut to a half? How can you ask for financial help during this hardship? Maybe you have run out of options and the only thing to do is ask your family or a friend to help you. Asking money from a loved one is not easy but if it has come to this, there are some things or tips you can follow to make it less awkward and still maintain the relationship in good terms.
Considering your current financial situation (unestablished or tarnish credit), borrowing money from a friend or family could be your best solution. One perk of turning to a friend or family for a loan is that they are going to be more flexible regarding interest and payments than any traditional lender and that could make things more bearable. However, asking for money from loved ones comes with pitfuls too, so you have to really think about it before going forward and asking for it.
Asking for money requires a certain level of humility but also a willingness to be open and honest about your financial situation. This is not easy to do since many people avoid talking about personal finances and once you turn a personal relationship into a business relationship, things are going to change. There's the potential of ruining the relationship, so experts recommend asking friends and family for money to be your last resort.
Ask Yourself These Questions Before Asking For A Personal Loan
Before reaching out to a friend or a relative and asking them to help you in your time of financial need, you should take some time to ask yourself these 5 questions. Once you have the answers, you'll be more prepared to do the asking and take the responsibility of the loan.
1. Why do I need to borrow money?
You need to be brutally honest with yourself here. Do you really need the money? Have you taken a good look at your finances and monthly budget? Are all your expenses necessary or can you cut some of them? Whether you go to a bank or to a loved one to ask for a loan, this is the first question you're going to be asked, so you need to have a solid answer.
2. How much money do I really need?
Beyond interest rates and payments, the most important thing you need to remember about a loan is that you only borrow what you really need. Burrowing more than what you absolutely need will get you into more financial trouble because it'll burn a hole in your pocket. You'll be in danger of spending the extra money on things you definitely don't need and you'll end more indebted. Ask for the amount of money you really need to pay off your debts.
3. What are the interest rates on a loan?
This is a very important question to ask and the one most people miss before asking for a loan. If you want to make a good and informed decision, you should aim to have an understanding of the interest rates on different types of loans. So go ahead and check the interest rates on other alternatives like peer-to-peer, home equity, personal loans. This could also help with your personal loan, so you can offer to pay something in regards to interests.
4. How much loan can I afford?
The exact amount of money you need to burrow is as important as the amount you can afford. You need to be able to afford to make the payments, so before asking for a loan make the calculations taking into consideration the payments + the interest rates. Do you have the money to make the payments? Be brutally honest here too.
5. Do I have the needed credit score for a loan?
This question is necessary if you're looking to ask for a loan on a bank or other financial institution. One perk of asking for a personal loan from a relative or a friend is that they won't care about your credit score.
Guidelines For Borrowing Money From Friends Or Family
As we said before, borrowing money from family or a friend should be your last resort. If it has come to this then you should follow these guidelines so that you don't ruin the relationship with your friend or the family member you're borrowing from.
1. Explore all other possibilities first
Before you go and ask for a personal loan from your dad or your uncle or a dear friend, exhaust all other possibilities first. Be sure you have taken the steps necessary to improve your financial situation. Start tracking your expenses to identify where you're wasting money. If you haven't already, start a budget and follow it! Learn if there are ways you can make some extra money. If you're not jobless (and you're doing great at your job), ask for a raise. You can also call the credit cards and negotiate better interest rates.
You need to be ready to take the responsibility of a loan, the same as you would from a bank.
2. Insist on paying interests
An interest-free loan is a gift for sure but as a borrower, it should be unacceptable. Your loved one is willing to lend you the money because he or she can and because they want to help so they may offer to do it without charging you any interest rate. However, you should insist on paying them interests, at least the rate they´d be able to get from a savings account, around 2%.
3. Forget about negotiating
You have talked with your relatives or friend about your financial troubles and they have agreed to lend you the money. They can lend you $3000 but you need at least double that amount... don't be ungrateful and ask for more money or that they charge you a lower interest rate. You're not dealing with a bank or a financial institution, you don't have any negotiation leverage here. There are only two options, you either refuse or you accept, forget about negotiating.
4. Set up some kind of loan documentation
You need to set up a calendar outlining dates and amount of the payments, then share this with your lender and. most importantly stick to it. If you both agree on the terms, don't be late making the payments and don't make excuses. Remember that you have a lot to lose if you don't stick to the terms, you could ruin the relationship with your family and/or your friend.
If you both want it, you can even draw legal documentation. That decision is more on the lender but if that's what he or she wants, then agree to it and sign the paperwork. If they decide that it is not necessary, go with it too, but personally, treat it like a formal loan.
5. Make an effort to pay the loan early
Make every possible effort to pay your relatives or your friend before the time agreed. Don't delay the total payment longer than necessary. If your financial situation improves before the time to pay the loan ends, pay it off early. This will be a nice surprise to the lender and it will show them you're a man or woman of your word, and it might win you some "extra" points with them.
Avoid Hurting The Personal Relationship
We all have had financial troubles and asking friends or family to help you during hardship is always uncomfortable but sometimes is really your last resort. Borrowing money from a relative can put the personal relationship in danger when the conditions of the loan agreement fall or are ignored by you. You need to avoid this at all coast if you want to preserve the personal relationship with your loved one.
If for some reason you fall behind on the payments of your loan, be sure to keep the communication lines open. The best way to avoid animosity with your friend or relative that loaned you the money is to have always good communication. Keep them appraised of what's happening and what you're doing to remedy the situation.
It's important to have everything about the loan on paper, it makes things easier and less messy. Reaching a verbal agreement with your relative or with a friend is easy but it'll be difficult to remember later what you agreed on and this could hurt the relationship. So write it all down and make sure both parties understand and agree to the terms.
Don't forget to thank your family or friend for lending you the money you needed. Show them your appreciation not just for the loan but for stepping up when nobody else did.
Asking for money during hardship to your loved ones is not easy and it could be embarrassing but if you treat it like any other loan and are prepared to take the responsibility of the loan it can really help you. To avoid hurting the personal relationship be sure to ask the pertinent questions and follow the guidelines provided here.