Borrowing money from family can seem like an easy and informal solution when you need funds quickly. But it’s important to think carefully before you do as it can put a strain on relationships. Find out more about what you need to consider before you go ahead.
What to think about before borrowing from family
Borrowing from a family member can seem like the obvious and best option if you need money quickly. It also avoids having to pay the high interest rates and fees for other forms of borrowing, such as payday loans and doorstep lending (also known as home credit).
But it’s important to think carefully before you decide to borrow from a relative. If you struggle to make the agreed payments on time or you take longer to pay off the entire amount, it could put a strain on your relationship. It can also create tensions among the wider family.
It’s always stressful if you can’t afford to make repayments, but it’s even harder if you know that a family member will be affected, too.
If you’re the borrower
It’s important for you and the lender to set out a clear and realistic plan to pay back what you owe.
Make a budget and set up a repayment plan
Before you borrow money, it’s important to draw up a budget. This will tell you what’s coming in, going out and what other bills and debts you have. Try our free and easy-to-use Budget Planner.
Setting a budget will help you work out how much money you have left for repayments after paying all your other bills. It’s important to prioritise your debts, as bills such as Council Tax, TV Licence and gas or electricity can have more serious consequences if you don’t pay.
You might want to show this information to the relative you’re borrowing from, so they can also get an understanding of your money situation.
Put your agreement in writing
It’s good to set out, in writing, how much you’ll pay and when. It’s also important to keep records of when you make repayments, so you both know how much is still owed.
Discuss what will happen if you struggle to make payments
You both need to be sure that the person lending to you can afford it, even if you can’t pay them back as quickly as planned.
Both agree that if your situation changes, such as an unexpected cost you think you might make you struggle to keep up repayments, you’ll let them know as soon as possible.
The lender’s situation might change too, and they may need the money paid back quicker than originally planned. Whatever the situation, you’ll need to come up with a new repayment plan together that works for both of you.
Having these conversations with family can be difficult. For practical tips on how to start an awkward conversation and potentially save the relationship, see our guide on how to have a conversation about money.
If you’re the lender
If a relative asks for financial help, it can be hard to refuse. There are lots of things that can go wrong, and you don’t want to risk falling out with family over money.
There’s no point getting into difficulties because you want to help and can’t say no. This is especially important if you’re not sure whether you can either really afford to lend to them or couldn’t cope financially if the loan wasn’t repaid.
Make sure you talk about, and agree, what would happen if the borrower lost their job, for example, and couldn’t pay the money back, or you needed it back in a hurry.
It’s worth taking the time to work out your own budget before lending to anyone.
It’s hard to think about, but if the borrower died with the debt unpaid you’d need proof to claim from their estate. If there’s a lot of money involved, it’s important to get advice from a solicitor or an accountant to arrange a more formal agreement.
Beware of who you borrow from
If the relative you’ve borrowed from is threatening you, charging excessive amounts of interest on your loan, or have taken something like your passport or bank card away from you, this behaviour might make them a loan shark.
It may be confusing linking the term loan shark with someone you care about, but it’s important you get advice. Safely make a report by calling Stop Loan SharksOpens in a new window on 0300 555 2222Opens in a new window.
They’ll contact you at a time to suit you and give you advice for dealing with the situation. They’ll also explain what will happen next, and help you get the financial, housing or debt support you might need.
Find out if you qualify for more help
If you’re struggling with money, it’s important you make sure you’re getting all the benefits you’re entitled to. Use our Benefits Calculator to check you’re claiming everything you qualify for.
If you’re facing higher living costs, find out about extra sources of income and support in our section Help with the cost of living.
Have you missed a payment?
Use our Debt advice locator tool to find free and confidential debt advice online, over the phone or near to where you live.
Other types of borrowing
If you’re not sure whether you should borrow from a relative, there are other options – even if you have a poor credit score. Find out more about what’s available in our guide Using credit wisely.
Next steps
Make sure you’re getting all the benefits you’re entitled to. Use our Benefits Calculator to check you’re claiming everything you qualify for.
If you’ve missed payments and need someone to talk to about your finances, find free, confidential advice now using our Debt advice locator tool.
