Unexpected bills and other expenses can throw your financial situation into disarray every now and again. I know when I’ve suddenly had to cover a cost I’ve sometimes wondered how I’m going to do it – and a couple of times have asked a loved one to help out.
It would seem I’m not alone. A recent survey by Legal & General has found that many Brits have borrowed cash from a family member, with relatives in the East Midlands proving to be the most generous.
This is because 58 per cent of people in this corner of the country have received money from a relative as a gift, meaning they’ve not had to pay it back. However, there are both advantages and disadvantages to this type of borrowing.
Family loans
Having had a short-term loan from a relative before, I know one of the biggest draws for me was that I wouldn’t have to pay interest. According to the Legal & General study, 40 per cent of people in Wales have cleared their debt without giving their relative any extra cash for interest.
This drops to around a third for individuals in the east of England and 31 per cent of those living in the East Midlands. On the other hand, many people have cleared what they owe a family member with interest on top.
Those in the West Midlands are the most likely to give their loved one interest along with their original debt, with eight per cent of people here doing so. I think many individuals would prefer to give a relative that extra bit of money, rather than a bank or other lender.
It also means you can avoid getting into tricky contracts with financial organisations, and simply come up with a straightforward verbal agreement with your family member instead. However, I would urge you to consider the implications of borrowing from a close relative – if you’re unable to pay the loan back in full or on time, will this damage your relationship?
Similarly, if they were to suddenly find themselves in financial difficulty, it could lead to an awkward situation should they ask you to quickly repay what you owe, but you don’t have the cash to hand.
Payday loans
One of the biggest pros of taking out a payday loan is that you don’t need to sit down with a relative and discuss your household finances.
Instead, you can lay down your money troubles at a lender and come up with the ideal amount you wish to borrow, making a payday loan a lot more discreet than asking your relative for help.
According to the Legal & General survey, nearly a fifth of people in the south-west who have borrowed money from a relative have only paid back part of the loan. This rises to 21 per cent of those in Scotland and nearly a quarter of residents in the north-east. Not paying back what you owe quickly enough could lead to tensions in a relationship. On the other hand, you have a clear deadline for a payday loan, giving you more motivation to get your finances organised as quickly as possible.
Have you ever borrowed money from a relative? If so, leave a comment about your experiences of doing so below.
