Friends and family are the biggest pillars of support in our lives. They know how to cheer you up on the dullest day of the year. You tend to bank on them even during times of a financial crisis. Unplanned spending and irregular investments may lead you into a financial crunch during emergencies. But is borrowing money from family members and friends a good idea?
Asking your parents or a friend for a loan may sound normal and you may get benefits like flexibility for repayment, nominal or no interest, and no security to compensate non-payment. Though it sounds simple and easy, it may give rise to several undesirable issues.
Here is a list of top 5 reasons why borrowing from friends and family is a bad idea:
1. Loss of income from interest:
Your loved ones would not charge you interest while lending you money, even if they agree to it, the rate of interest would be much lower than bank interest rates for a personal loan. It is beneficial for you, but the lender will be losing on interest income he could have earned on that money. To avoid such losses to your loved ones, it is advisable to approach a bank or financial institutions lending money.
2. Repayment may not be easy:
Your family and friends do not lend money for interest, so in most cases, there is no paperwork. In the absence of written repayment terms, it is hard to decide a timeline and they may ask you for the money soon after. In such a case, you may either be unable to pay the amount or will have to take further individual loans to repay the earlier one. When borrowing from a Bank your repayment terms are well laid out on paper and you can even improve your credit score with timely loan EMI payments.
Borrowing money from family and friends leaves you feeling indebted to them forever. In case you are unable to repay the loan amount, you will feel awkward facing the person each time you meet them. Even after the personal loan repayment you will remain obliged to them for helping you in your tough times. The scenario is entirely different when you apply for a bank loan online or offline. Since the organization deals in furnishing loans to those in need, you don’t feel they have done a favor for you. Unlike your dear ones, you can freely visit the bank or financial institution for other services.
4. Landing into a stressful situation:
You borrow money from your loved ones with a strong intention to repay, but if your budgeting fails you may not be able to do so. This can be stressful for you and your dear ones. Also, in case the family member who lends you loan money needs it back urgently due to unavoidable reasons you cannot deny paying them. Borrowing money from family and friends is similar to taking an unsecured loan, and it might lead you into unexpected trouble. Banks however will not pressurize you to make an early payment and there won’t be any issue if the loan EMI is paid on time.
5. Ruining relationships:
You owe your family or friends a favor once you borrow money from them. Even if you are able to repay the loan amount on time, you will feel guilty if you are not able to help them during their low time and return their favor. In case of an emergency, they may expect you to help them out, but you may not be in a position to support them. Such instances ruin even the closest relationships. Availing loans from a bank or financial institution ensures you don’t land in such unpleasant situations.
An important lesson in financial management is to ensure your savings are enough to allow you to survive through a minimum of 6 months. But still, sometimes you might end up in a financial fix. Save yourself from the guilt and humiliation arising from the above-mentioned issues during such phases. You must steer clear of involving financial matters in personal relationships. Keep the awkwardness of money discussions away from family chitchats and friendly gossips.
It is advisable to keep your financial situation discreet by applying for bank loans or trying online money lending options. Easy EMI arrangement makes repayment feasible and gives you more peace of mind.
Avoid risking the hard-earned money of your near and dear ones. Adopt money lending techniques that are low risk. mPokket offers low-rate loans for all your emergency needs. Our quick paperless process allows you to apply for an instant personal loan online. Download India’s top-rated instant loan app for students and young professionals. Upload the required documents to support your loan application. Once approved, the loan amount is instantly transferred to your bank account.
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