by Aidan Kang, CFA
Senior Writer
Loans
UPDATED: October 13, 2022

When you’re short on cash, the first thing that comes to mind is to ask those people close to you for help. Unfortunately, that’s easier said than done. It is a very sensitive and awkward topic that many people struggle with, not only for the borrower but the person lending as well.

However, many people still pursue this option, perhaps out of desperation, but be aware of the potential pitfalls. A 2019 study has shown that many such loans end up badly. 

If you don’t know how to ask a friend or family member for a loan properly, or if you fail to follow through with your promise to repay them, then you may end up with strained relationships in the end.

How to Ask Family for Money in 11 Ways

It’s more appealing to ask for a loan from your friends and family because you don’t have to go through the tedious process of applying for a loan. You don’t have to submit any document or undergo a credit check. You may even get the loan that you need immediately with minimal or no interest at all compared to bank rates.

If you’re facing a financial emergency and you need an immediate source of loans, you always have the option to borrow from the people you know. However, you need to know how to ask for financial help from a friend or family member properly.

1. Send A Letter To A Family Member

Borrowing money is a sensitive topic and not part of your everyday conversation. Don’t put the person you wish to ask money from on the spot by telling them right away and in person that you need a loan. 

Most people will become defensive when they’re caught off guard, and that can be true with your family members too. Why not send them a letter first? This way, they will have some time to think it over and give you a proper response once you talk to them in person.

2. Check Other Options First

Before anything else, it’s best if you exhaust all other options first before you seek a loan from the people you know. Make sure to look into your finances first and figure out where you can make adjustments so that you can cover the extra money you need.

Moreover, if you apply for loans from lenders, they need to make sure that you can commit to making repayment, you have a good credit score, and you have good borrowing habits to lessen their risk. When borrowing from people you know, the responsibility falls on you. 

You need to be accountable for making timely money payments and to fulfill your promise when you say you’ll pay it back once you get your next paycheck.

3. Prepare To Explain

When you borrow from a lender, you fill out an application form, submit your bank statements, and meet all the other requirements. You may not have to do all these, but you need good excuses to borrow money from friends or family. Having a close relationship with them doesn’t excuse you from explaining why you need a loan.

You need to present your case and let them in on the reason you need to borrow. Tell them your repayment plan for the same amount, plus how much interest you can pay in return.

4. Borrow Money That You Can Afford To Repay

You need to evaluate your financial situation so that you’ll know how much you can borrow without having problems when it comes to monthly payments. 

Only borrow an amount that you can afford to pay back. It’s best to create a budget as it will help you manage your finances properly, including paying off your debt.

5. Tell Them Your Loan Payback Plan

When you apply for a loan with any lending company, you’ll have to agree to pay the loan amount on a specific date. It also applies to your friends and family.

Did you know that consumers owe $184 billion annually to friends and family? You wouldn’t want to add to that number. You need to set clear repayment terms to show that you’re committed to returning the money you borrowed.

Explain how you plan to pay them, including details like whether you’ll make a single payment or in installments. If you prefer the latter, tell them when you can start, the amount, and when you plan to fully return the loan. 

You can also set up recurring transfers to the account of the person who lent you the money. It’ll make sure that you don’t make late or miss a monthly payment when they’re due.

It’s also recommended to have a backup plan in case you fall behind on your payments like paying a penalty fee. If you have a valuable asset, you can also offer it as collateral. All these will help increase their confidence in your willingness and ability to return the money you owe.

6. Add At Least Some Interest

One of the reasons people choose to borrow money from a friend or family is to avoid paying interest. Even if they say you don’t need to pay interest, you should still insist on paying an extra of at least 2%, if you can. More than anything, this is to show you are genuine and not trying to take advantage of your relationship.

7. Don’t Negotiate Or Ask For More

After discussing your financial circumstances with your friend or family member and they have agreed to lend you cash, don’t negotiate for a low-interest rate or ask for more money. You’ll sound ungrateful if you do.

Let’s say you need $5,000 and your friend or relative can only afford to lend you $3,000. Accept it and say thank you. If they ask that you pay an extra 5% and you can afford it, then accept the term and move on. 

They’re doing you a favor with this financial support, and it’s your responsibility to meet their loan terms. You can accept or refuse them but never negotiate as that could sour your relationship in an already awkward situation.

8. Sign An Agreement

Once you’ve come to an agreement, write up an agreement and sign it before the money is disbursed. You and the friend or family member should keep a copy of the agreement. That way, you’ll both have something to refer to in case conflicts arise.

9. Pay The Loan Early (If You Can)

Always remember that you’re borrowing money from friends or family to cover a short-term unexpected expense. Even if they’re lending you their spare money, that doesn’t give you an excuse to delay making a repayment. 

If you manage to earn extra money before the due date, then pay off your loan early. It’ll show that you’re committed to paying off your loan.

10. Don’t Let Money Ruin Your Personal Relationships

You have a strong bond with your friends and family. Adding money into the equation can sometimes complicate your relationships. That’s why you need to exhaust all other options first before you borrow from your friends and family.

Also, don’t let your relationship revolve around this loan. Work to maintain a good relationship with the person who lent you the cash. Don’t avoid them or do unusual things because you owe them. 

Don’t let things be awkward. Just act normal. Have dinner together and spend holidays together just like you used to.

11. Pay It Forward

When the day comes that you have a stable financial situation, don’t forget the people who helped you along the way. Return the favor or pay it forward. Help those who are in need, especially if you’re in a financial situation to do so.

Someone might be in the same position as you were before and perhaps you can show some kindness by helping him or her just like how your friend or family helped you in the past.

How to Write a Letter to Ask For Money From Family or Friends?

When you just talk to your family when borrowing money, you’re putting them on the spot with your request. They become defensive when they’re caught off guard. 

What you should do instead is send them a letter asking for a loan. This way, you’re giving them enough time to think about your request before they talk to you about it.

When you write a letter, be sure to include the following details:

  • Why do you need the money?
  • How much do you need?
  • How will you pay it back?

Ask Yourself These Questions before Borrowing Money from Family

  1. Why do you need a loan?

This is the first question that people will ask when you try to ask for money from them, whether it’s your family, bank, or lender.

  1. How much money do you need?

Make sure to borrow only the amount you need. You should have a payment plan in mind before you even ask for a loan.

  1. How much can you afford?

Don’t create a feud or burn bridges with your family member or friend by borrowing a loan that you can’t afford to pay.

  1. What are the average interest rates on loans?

Your family may not require you to pay any interest but should still offer to pay, especially if you’re borrowing a large sum.

Should Borrowing From Friends Or Family Be Your First Or Last Option?

Asking for financial assistance from your loved ones can be an excellent option (sometimes the only option) if you need help in getting out of a temporary financial ordeal, such as student loan debt. However, you need to be humble and willing to share your financial circumstances with other people, something that you may not be comfortable doing.

Many relationships have been strained, severed, or destroyed because of money matters. If you’re having financial difficulties, it’s best if you consider asking for a loan from friends or family as your last option.

Alternatives To Borrowing Money From Family or Friends

There’s nothing wrong with learning how to ask for financial help from a friend or family. But, before you take this step, make sure that you’ve exhausted all other options to improve your personal finance status.

  • Check your spending habits and find out where you’re wasting money.
  • Create a budget and make sure you stick to it.
  • Take up a side hustle for extra income.
  • Ask for a salary raise if you think you deserve it.
  • Sell things that are still usable but no longer needed. Hold a garage sale. It’s an easy way to get fast cash, especially if you’ve got good items to sell.
  • Pawn a valuable asset. You can get it back once you paid off the loan plus interests.
  • Ask your credit card issuer if you can get a better interest rate.
  • Consider an unsecured personal loan. If you have a good credit history, you may find lenders that offer a lower interest rate.

Conclusion

When you encounter a financial emergency and you need immediate cash, one of the common sources of funds is your family member or friend. But before you ask your family for money, make sure to exhaust all other options (i.e., a bank loan, a personal loan, a different lender, etc.), first to find the best solution. 

Money can put an end to friendships and personal relationships. You don’t want to complicate things between your family and friends because of a loan.

In case you have no other choice, you can go down this path and approach the people close to you. However, you need to be prepared and know how to politely ask your family for money. 

Keep in mind our tips above! If they provide you the loan that you need, always remember to pay them back early or on time the exact amount of your borrowed money to avoid putting a strain on your personal relationship. 

Make it stress-free for both of you and don’t let hard feelings develop because of your loan or poor financial decisions. Ultimately, aim to improve your personal finance by striving to have financial security and reach financial freedom.

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