If a colleague or friend offers to lend you money, it might seem like an ideal way to get hold of funds you need quickly. It might also appear cheaper than paying the interest rates and fees charged for formal borrowing, particularly high-cost credit such as payday loans and doorstep lending (also known as home credit).

But it’s important to think carefully before you decide to go ahead. If they’re someone you know from work, or a community or faith group, how well do you really know them? If you struggle to pay them back or take longer to pay back the entire amount, is there a chance they could they put pressure on you to pay? 

Be especially wary if they’ve lent money to other people too, as they could be a loan shark.

It’s important for you and the person you’re borrowing from set out a clear plan about what you can afford to pay back and when.  

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. 

This will help make sure that you can be confident you can pay what you’re committing to. 

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 you still owe.

You need to be confident that if you’ll struggle to make a payment, the lender won’t put pressure on you to keep paying. Before you borrow money, it’s important that you and the lender agree on the possibility of drawing up a new repayment plan if your situation changes. 

The last thing you want is to borrow from elsewhere to make repayments because you’re being put under pressure. 

If someone you know is struggling with money, it might seem simple to offer to help. But think carefully before you lend them anything. Consider whether it might cause problems in the workplace if they’re a colleague, or create tensions if you’re both part of the same community or faith group.

You need to be confident that they’ll be able to pay you back even if they lose their job, for example. Would you be willing and able to work out a new plan if they do struggle to make repayments and give them the time they need to pay? 

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. This will help protect you if the person borrowing from you dies and you need to claim the unpaid debt from their estate. 

According to Stop Loan SharksOpens in a new window 62% of victims of loan sharks believed them to be a friend when they borrowed money. 

It’s important to avoid borrowing from people who you don’t know well, such as colleagues, casual acquaintances, friends of friends, or people you recognise in your local community or faith group.

If someone you don’t know well offers to lend you money, steer clear – they might be a loan shark

If you have borrowed from someone and they’re threatening you, charging excessive amounts of interest, or have taken something like your passport or bank card away from you, this behaviour might make them a loan shark. If you’re in this situation, important to get advice. Safely make a report by calling Stop Loan SharksOpens in a new window on 0300 555 2222

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.

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

If you’ve got concerns about borrowing from someone you know, there are other options – even if you’ve got a poor credit score.

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 on Universal Credit, or think you might be using it in future, use our Money Manager tool to get information and guidance.

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