Borrowing money from family or friends
Many people are considering cash advances, credit cards and savings obsolete in the current market. They either don’t have these tools or are wary of using them to cover bills. The age-old fallback plan for a lot of people is to find family or friends to borrow money from. While this may be a viable option, remember that there are some things to decide on before you ask and while you discuss the transaction. Here are three questions to think about:
- What will the money be used for?
- What plan do you have to pay it back?
- What plan do you have to make sure this doesn’t happen again?
These questions are all very valuable to explore before you ask for the money and when you are stating your case. It’s not only a good way to protect your family, but it also gives you a good gauge as to how well you have thought the plan out. For example, if you need $1,500 but are out of a job and don’t know when you’ll be bringing money in again, you may be putting your borrower at risk. Are they in the position where they can wait for you to get a job and start paying the loan back? What if you can’t pay the money back in one lump sum, but rather pay it back in installments-can they wait?
Make it official
Any loan you take out from a family or friend may seem much more casual than going to a loan company or an online cash advance lender, but it needs to be as formal. It not only gives the lender the assurance that you are serious about paying the money back, but it also gives you the chance to really get a plan down in writing as to what you are going to do. Make sure you have a contract that specifies the terms of the agreement, from the total amount to the payback schedule to the payment amount. If it is a considerable amount, many people look for legal help and have a lawyer draw up the documents. Whatever method you use, be sure to include:
- Names of borrower and lender
- Contact information
- Current Date
- Total Amount
- Interest rate, if applicable
- Number of payments over time
- Date when loan should be repaid
- How often payments will be made
- How payments will be made
- How records of payments will be kept
- Late charges to be added
The point is to make the structure of the loan as transparent as possible for all parties involved.
Taxes and interest
If the loan you are borrowing is under $10,000, then most likely taxes won’t be an issue. The IRS is concerned with amounts at that number or greater. If it is higher, talk to a tax specialist and find out exactly what is involved in the transaction. On the other hand, if it’s a lower amount, consider interest. Remember that if your loved-one has to take the money out of an interest bearing account, they are losing money beyond just the principal. You should try to include some form of interest in the payments you submit to mitigate the lender’s losses.
Loans and loved-ones
Loans and loved-ones can be tricky. To avoid any misunderstandings, be sure you lay out your plan in full. Write down the details and explain to your friends or family exactly how the loan will play itself out. If there are issues or you see some problems, try using a credit card, savings or cash advance loans instead. There are better ways to find funding that don’t involve risking relationships.