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In today’s world there are huge options for availing loans and these loans are provided by all sorts of banks; however an easier way instead of loaning money from a bank might seem to be borrowing cash from a friend or a relative and this, however easy it might seem needs to be exercised with extreme precaution as nobody wants to spoil a relationship of years for a few lousy bucks!

Why To Refrain From Crediting Money From A Comparative?

1) Dealing with Cash Only

While loaning money from a close one, it is always advised to deal in cash as that is a mode of payment on which the lender does not have any further responsibility. In other words, getting a loan co-signed by your friend or a relative should not be exercised as it adds to a huge responsibility on their end. In case the borrower is not able to make payments on time, it effects badly on the credit rating and scores of the co signer as well.

2) Understanding the Personal Impact

Loaning from a family member who might not be able to loan it to another person might be considered as an act of favouritism or even enabling towards you and that might put up a wedge in personal relations.

3) Affecting the Lender’s Credit Score

There might be instances when a lender co signs an application for money with the borrower in a bank or instances where a family member night put up as an applicant on the credit card; however in the unfortunate circumstances the borrower or the credit card holder is unable to make the payments on time, the credit score as well as the morality of the family member or friend who helped would be in question as well by the bank as well as the authorities. This might in turn lead to a broken trust.

4) Increased Personal & Financial Pressure

Although borrowing money from a close one such as a family member or a friend might seem easier, it sure does have its disadvantage. The mental as well as financial pressure it puts up on the mind is much more than when the payment to a bank is late for any sort of loan as the money that needs to be paid is for someone that means a lot to you.

5) Levied Interest Might Create an Awkward Scenario

There are instances when borrowing from a family member or even a friend comes with interest charged and this might create an awkward situation as it might seem unnecessary. However this will encourage the borrower to make timely payments to refrain from the interest that is being charged but after this is over, it might create an irreparable loss in the relationship.

6) Misunderstandings might be Unavoidable

One of the major drawbacks of loaning money from a family member or a close friend is that the borrower often tends to stray from the said payment terms as this kind of a loan is labelled as unofficial borrowing & this often creates misunderstandings in terms of payment schedule. On the contrary, taking loan from a bank means that the borrower needs to abide by the dictated terms and straying from them has its consequences.

About Author: Ritika is an expert financial advisor. She shares helpful information through her article on financial help and advice. Currently she writes Morgan Finance Australia .