As family members see you struggling with debt, they may want to help. Perhaps they have been in your shoes and know what you are going through. Maybe they are just generous and want to contribute. Is accepting loans from family members a good idea?
It depends on the person. And the family.
Let’s Look at both sides
“No Way!”– Why you shouldn’t borrow money from family
There are some who are absolutely against loaning money between family and friends, for fear that it will ruin relationships. In The Total Money Makeover, Dave Ramsey gives several scenarios to show how relationships can suffer when well-meaning people loan money to family members. He says “the borrower is slave to the lender.”
In many cases I’m sure this is true. If relationships already feel unbalanced and communication isn’t excellent, or the agreement is only verbal, the pressure and anxiety of money issues between two people could break the relationship. If you’re going to choose a “safe” side of the issue, it would be to say no to family loans.
“Why Not?”– Why it’s okay to borrow money from family
Ever since I was a kid, I have though of myself as invincible, so it doesn’t surprise me that I see myself as the exception to the “no family loans” rule. Here are a few reasons why my husband and I are comfortable with family loans.
- We have great relationships with our families. We feel that our relationships are strong enough to handle even the strains that a loan might bring.
- We are open and have good communication, both in good times and bad.
- We would take a family loan more serious than a debt to a faceless creditor.
- We have every intention of paying back everything borrowed at a fair interest rate.
- We know it’s important to put these things in writing and discuss all the possibilities.
If these don’t sound like your situation, then a family loan probably isn’t a good idea.
Family loans can be a win-win situation. The borrower can avoid the high interest rates of their original creditors and the lender can earn more interest than they would in a savings account or CD and be able to help out someone they love at the same time.
Other Ways Family Members Can Help
Sharing Excess
Knowing that we work hard to keep our food budget low, my sister-in-law often shares her excess with us. It is not unusual to visit her and come home with a couple gallons of milk.
My in-laws, who grow a big garden, share their excess with family and friends who can really use a little breathing room in their budget.
Sharing Housing
We are proof of this, since we currently live in my in-laws’ basement. Making headway on our student loan debt would be nearly impossible without this generous arrangement. While this is not an option for everyone, it works very well for us. If you are considering this sort of arrangement , check out my tips for living with family to save money.
Giving Money
If you are worried about potential strains on family ties in a lender/borrower relationship, giving money without expecting to be paid back is another option. However, don’t be offended if your family member doesn’t want to accept such a gift. I know I am proud and stubborn and would have a hard time with someone wanting to give us money. I have a hard enough time accepting expensive Christmas gifts from family members.
Being a Listener
Having someone disclose their debt to you might be kind of a big deal. It puts them in a vulnerable position. Chances are they are not asking for a loan or free money, but just someone to talk to. You can share a burden by simply listening and encouraging.
What do you think?
- Would you accept (or give) a loan from a family member?
- If you have borrowed or lent money between family how has it turned out for you?
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I have a really good relationship with my family, but I could not ask them for money. They are already letting me live with them (for another year and a half, too), I just couldn’t stomach asking for more. It works for some people though, and that’s great! My best friend’s parents were her lender for grad school and she is paying them back just like she would any other student loan.
I agree. I am not one to *ask* for help, though I can sometimes be convinced to accept it. For example, all day yesterday I was sick (stomach flu or something) and my mother-in-law took care of my kids, fed them dinner and put them to bed. I was grateful and willingly accepted, but in the evening when she came down and started clean my messy kitchen, it took some serious humility to let her serve me like that. She had already done so much for me, which is hard when you like to be independent.
That’s awesome that things are working out well for your best friend. It’s nice to hear success stories 🙂
Growing up my husband and I’s family never had money. We grew up money poor, but rich in love. Both of our mothers are single parents and are amazing wonderful people. My husband and I learned to be very frugal with our money because of our childhood. Unfortunately, our single moms still struggle with finances because we have younger siblings they are raising. We have loaned my MIL money before and she paid us back with interest after a few years. I have never loaned my mother money, but I have bought various things for her or paid bills for her over the years never wanting or expecting to be paid back. We have also paid for one of his sister’s a flight home when she was divorcing her husband. We bought several hundred dollars of groceries for my sister and sent money for Christmas presents for the kids.
With all of that said, it makes me feel more comfortable to give the money as a gift. I wouldn’t loan money to a family member, but I would pay the bill, fill their car up with gas, buy them food or anything else that they need. This let’s me know that the money has gone to the right place (not that I’ve ever worried about that before)
It’s great that you learned to be frugal early in life and I’m sure it helps that both of you come from similar financial backgrounds. Thank you for sharing your perspective CeCee. It’s one I don’t initially think of. That is so wonderful that you were willing and able to help your families. You are such a generous and kind daughter and sister.
We have a really good relationship with my parents, and we have experience with borrowing money from them. I totally agree with the concept of making sure all expectations regarding the money are written down at the start- memories are fallible, not to mention it is easy to misunderstand what someone has said verbally, even if you do remember exactly what was said. We purchased a house during medical school in a very depressed market (The first time home buyers credit, and the price of purchasing a house being so low made it well worth it for us) However, as a student we didn’t qualify for a traditional loan since we didn’t have a traditional income. We ended up getting a loan from my parents for the house instead. In the end everything worked out great (selling it gave us enough money for the down payment of our current home) but there definitely were some hairy times when we were looking at records and trying to remember what we had agreed on as far as re-payment, interest, etc. Our strong relationship & commitment to work things out saw us through, but if not for that it would have been a lot harder.
Now that we are in residency, we are a lot more stubborn as far as accepting money or help. My parents would often send us money for extra fresh fruit, clothes etc… they also took care of most of the repairs on my car over the 4 years of medical school… but now we’re a lot slower at accepting help from them. We are working on transitioning to being fully independent. I appreciate the help my parents have given us, but I am so ready to be self sufficient! (Not dependent on help from other people- not self sufficient in terms of dependency on God of course!)
Great post!
Sarah-Ashley, that is great to hear of your good experience and advice. That is wonderful that your parents were able to help you out so much! I totally know what you mean about being ready to be self-sufficient (I agree with you definition).
Reading you experience reminded me that when we bought a small house in law school, my father-in-law cosigned on our mortgage loan (which potentially can end up with the same family issues as lending money). We had 20% down and knew we could make the payments (they were less than what rent anywhere would have been). None of us thought twice about having him cosign (at least not that I know of) because we knew we wouldn’t default.