Borrowing From a Loved One? Do it the Right Way

When you run out of money, it is sometimes just easier to call your sister or mother. Knowing that they are family and they love you, you are almost sure to receive help one way or another. However, when you borrow money from a kin, it does not give you privilege to relax on the repayments. Keep in mind that they, too, have their own needs. If you do not give importance to their efforts, they might hesitate to help you the next time. So it is important to keep their trust. Whenever you borrow a significant amount from them, treat it like you loan money from the bank.

Draw a contract or keep the loan in writing. Through this you are giving them security that you are treating this loan seriously. Have all the people involved to sign. Then distribute a copy to everyone including you. Now that you have things on paper, you have now a legal document which can be used in court.

Offer to pay interest. You can agree on which interest rate to follow or you may suggest regarding which one is currently used in the market.

If they do not agree with interest rate, you may also offer collateral. Give something that is of value but not necessarily tremendously valuable such as your house. Remember, this is not a bank transaction. There should be nothing serious like involving a house although it is a possible form of security pledge as well. The collateral is more for emotional security of your family. For this matter, you may offer jewellery or car.

Agree on the longevity of the loan and the payment due each month. This may depend on what you agree on and the enormity of the loan. It may also depend on your capability to repay overall.

When all of these things are set, make sure to pay on time. Treat the loan as if you owe it from the bank. You have the tendency to be keener on repaying the bank so have the same mind-frame on this loan. It could also help if you try and payoff the entire debt earlier.

In cases you have to miss a payment, be sure to explain to your kin. If you are having a hard time with the payment terms, negotiate for a much better one. Remember that there is nothing that honesty cannot solve.