5 Reasons Why You Should Not Lend Money to Family - MoneyTap Blog
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5 Reasons Why You Should Not Lend Money to Family

“Bhai, I need some cash.” At one point or another, a cousin, a sibling or another family member, has hit us up for money. When you were young and the loan was for a meagre ten bucks to buy a packet of biscuits, you didn’t really mind. But as you grow older, you might find yourself faced with a relation who needs some serious money – money you might have been saving for yourself. Your heart might say, yes; I need to help family. But before you do that think about it. As tempted as you may be to lend money to family, there are at least five good reasons why you and your family might be better off without this financial arrangement.

  1. It is an open-ended loan. When you loan to your family, you and your relatives seldom sit down and discuss the terms of the loan. It is usually assumed that it is interest free and has no pay-by date. Both parties are under pressure because of the informality of it. Your relatives might feel worried about when you will call in their loan, and you will be stressed out about when your money will come back to you. Sometimes, an open ended loan can also prevent you from being able to make important life decisions because the money you were saving is not accessible and you don’t know when you will get it back.
  2. It makes family gatherings awkward. The open-ended and informal nature of your loan can make family parties uncomfortable. The borrowers might feel embarrassed that you are aware of their financial problems. They might feel uncomfortable in your presence because they might feel very indebted to you for your help. Similarly, if the borrower is overly grateful, the lender might feel uncomfortable spending time with them.
  3. How can you ask for the money back? It is very difficult to go to a relative and demand repayment. Some relations might even be surprised when you ask to be repaid as they might assume that the loan was really a gift. It is nearly impossible to come out of such conversations unscathed.
  4. You might hurt rather than help a family member. You might have loaned the money with your best intentions, but you might find that your loan is simply allowing your relative to continue on a path that is financially irresponsible and might hurt them more in the future. Your money might be used as a fall back for a person who cannot manage debt properly and now has no incentive to learn either, thanks to you.
  5. You might lose your money and your relationship at one shot. One hasty or unwise discussion about your money might seriously damage your relationship for good, and you might never see your money again. Furthermore, it might affect other relationships as well because no family survives without family gossip and drama.

Lend Money to Family, To Do, Or Not To Do?

The next time a family member or friend asks for a loan, do not do it. You might wonder how you could possibly say no and still maintain the relationship. But it is possible.

First, show your concern. Ask kind questions that express your interest in helping them. Explain to them how you are concerned that money might come between the two of you. Instead, offer them non monetary support, like helping them find a job.

If the person hasn’t looked into other options, research the other options with them.  One such option is MoneyTap’s personal line of credit which is approved in minutes.

If you are unable to avoid loaning money, make sure you discuss all the terms in advance. Explain to the borrower that you need the money back for a specific purpose. Make a repayment schedule that the borrower can easily follow. Make sure you share information with them on how to lead a more healthy financial life. Also, put the borrowers mind at ease that you will not discuss this arrangement with other family members or at family gatherings so as to minimize awkwardness at family functions.

It is really important to remember, especially in our Indian culture where we value family so highly, that deciding not to lend money to family does not make you a bad person. Certainly, care for the elders in your family and help your parents out, but do not become the piggy bank the family turns to every time someone has money problems. You definitely should not feel guilty when you have pressing need for the money yourself.

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Shiv Nanda

Shiv Nanda is a financial analyst at MoneyTap who loves to write on various financial topics online. He also advises people on financial planning, investment choices and budgeting skills, and helps them make their financial lives better.

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