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Sad friend and family member after borrowing money.

8 Reasons To Stop Borrowing Money From Friends and Family

Have you ever had pressing issues or been so cash-strapped that you resorted to borrowing money from your friends or the thought of borrowing from a friend came to mind?

Borrowing from friends most times seem like the best idea. Your friend is not a financial institution, there would be no hassles of documentation, there would most likely be no interest rates, and even if there were, it would be extremely low. Borrowing from a friend or family member is no doubt cheaper in the long run but the personal issues it generates can outweigh the advantages.

Why you should not borrow money from family and friends

1. Borrowing could put a strain on your relationship.

Borrowing from a close friend could put a strain on your relationship. There’s a popular saying that you don’t really know someone until you have to do something where money is involved. Borrowing from a close friend could give you this sense of entitlement. A sense of entitlement that was not developed consciously but just happens to be there. Since there is no written contract and all your agreements are oral, there might be no form of accountability on your part. There is a difference between owing a financial institution and owing your friend.

A financial institution like Creditville Limited would be on your neck to pay up according to a schedule which was created for you at the beginning of your loan tenure while a friend would most likely not disturb you even if they were inconvenienced by your failure to pay as at when due. Putting a friend in this situation is making them uncomfortable as they may not want to embarrass you by asking you for funds. Even when you are an extremely disciplined person, certain things may come up which might warrant you spending that money as against paying your friend. While some friends might be understanding, some might not be. Some friends become entirely different people when it comes to money and could go as far as embarrassing you or getting the police involved when payment is not made as at when due.

I once sold some items to my cousin. He bought them as gifts for a friend of His and was able to pay me a substantial part of the money. When I asked when He was going to pay the balance, He responded “Will you die if I owe you?” I was shocked to say the least. He was almost 20 years older than me and I had such high respect for him. I could never look at him the same way again, especially since He never paid me and I never bothered after that. That simple act had created an endless ripple that affected our relationship.

2. Limited Legality When Borrowing From Friends & Family:

A loan taken through a bank or a private lending firm is done through a contract with all the terms outlined in the agreement. Borrowing from a family member might mean that person can make changes to the loan amount or repayment terms at any time. If your friend has a pressing need, they might have to ask you for the money borrowed even though the time for repayment is not due.

3. Lack of Priority in Repaying the Loan:

As hinted earlier, because the lender is a friend or a family member, it is very easy to take advantage of that relationship and abuse it by not treating the loan with the urgency required.  If a repayment schedule has not been prepared at the beginning of the agreement, repayments may lose their importance. Unlike borrowing from a financial institution or bank, there are no repercussions for late payments because a contract was not drafted at the beginning. No higher interest rates, no penalties and certainly no impact on credit rating. With little or no financial or legal threat, the loan can be put in the not-so-urgent pile.

4. Requesting the loan to be repaid:

There is always a certain amount of discomfort and embarrassment if the lender starts making demands about repayment of the loan. This is not an easy situation and can cause a problem with the relationship regardless of whether they are a friend or relative. It’s not only talk about the loan that stops, all other communication usually stops as well.

5. Feeling like you owe more than the debt:

A family member or friend who borrows you money can take advantage of that fact. They can begin to make demands from you which have nothing to do with the loan arrangement. Gratitude may make you feel some kind of obligation to do what is asked of you whether it soothes you or not. Some may even go as far as getting involved in your personal life way more than they usually would.

6. Loss of Money, Friendship or Both:

If you borrow money from a friend or family member and are unable to repay the loan within the stipulated time, or at all, the lender loses their money and it’s the end of the friendship. Feelings such as anger, guilt, remorse, regret, disappointment, distrust may be present and either there is tension in the relationship or it is lost completely.

7. Avoiding Functions Where you could run into them:

While owing somebody, you might want to avoid all social contacts with them by avoiding social gatherings or functions where you might run into them. Although some people prefer to take the alternative approach of actually attending these functions but avoiding any topic that has to do with money.

8. The loan costs the lender money:

Money invested earns interest or compound growth. Money lent to a friend earns little or nothing in the way of interest. A friendly loan is most likely principal only and has no advantages to the lender. Also, in some cases, not necessarily planned  by the borrower, the money could be paid back in bits and pieces in such a way that the lender may not see the value of the money after it has being paid completely.

While borrowing from a friend could be an option, you should consider all of these before taking the step especially in cases of significant amounts.


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