4 Reasons Why Loaning Money Among Family is a Bad Idea
Many families will go to great lengths to help relatives. This type of love and caring can become complex when money is involved. Although it is tempting to make loans to family members, the reality is that the family relationship will cause problems. There are four reasons why loaning money among family is a bad idea.
Emotions Make Enforcing Contracts Difficult
The strong emotions that exist between family members can make enforcing a loan agreement difficult. Family members often feel uncomfortable demanding a payment on time or collecting interest. This can result in a loan that goes unpaid or that puts the lender in a poor financial situation if a problem arises. Loaning money to family is a bad idea because the contract is never simple and straightforward when it comes to relatives.
You May Have Other Opportunities
Oftentimes, people use borrowing money from family as a last resort. However, for others, it is the first solution they can think of. Try looking at your options before you go asking your relatives for money. There are many lenders who offer low VA rates, or low interest rates that you might qualify. A good rule of thumb is to exhaust every possibility before you ask your family for money. It is always messier when family gets involved, so you will be grateful you used a professional lender as opposed to your unpredictable family members.
There Is No Credit Benefit
The simple fact is that there is no benefit to credit when borrowing from family. The experts at LowVARates.com suggest getting a loan through professional lenders because it will improve credit scores over time, which will open up new borrowing options for you in the future. Turning to family members every time a loan is needed will leave a person with a low or non-existent credit score that will make borrowing through banks or other official lenders very difficult. There is also little benefit for the lender since most family members do not charge interest.
It Can Destroy Relationships
Loaning money among family is a bad idea because it can destroy otherwise good relationships. A relative who defaults on a loan and never repays it will create an awkward rift in the family. This is why some people avoid going into business with their family members. The person who defaulted will not be welcomed in the same way at family gatherings. Problems with a loan also erode trust and can lead to feelings of resentment in both parties.
Loans between family members should be avoided whenever possible. It is often better to provide support to your family members in other ways such as helping to find a good lender or doing some work for free. This prevents a cycle of borrowing from ever starting within the family.
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Category: Family Finances, Loans
