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Borrowing from Friends & Family: Pros and Cons

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Sometimes financial difficulties take us by surprise, and we require additional cash to make a substantial acquisition than our regular budget allots. Most people consider two options for resolving these issues: taking out a short-term loan from a lending company or borrowing money from family or friends.

Most people might get tempted to turn to a family member or friend because it seems obvious and less time-consuming. Before you do, ask yourself if it’s the soundest route. While borrowing from people you know allows you to drive faster with fewer complications, the process is not without significant risks. By doing your research and taking positive steps to be ready to make a funding request, you can make an informed decision concerning both your business and your future relationships with cherished ones.

Here in this article 786 Loans has collated some pros and cons of borrowing money from your family and friends.


Here are some of the advantages of turning to friends or family members for a loan:

#1. Flexible option
Entrepreneurs and those with poor credit may fight to secure a loan through conventional means. One of the benefits of borrowing from family or friends is that you don’t have to skip through the same financial obstacles to be approved. Unlike banks, your cousin won’t make you provide pay stumps, and they seemingly won’t run a credit check either.
Additionally, private lending from friends or family can allow for more flexible repayment schedules. For example, you can set up a balance period that allows you to rest payments while your business is getting off the ground. As an added benefit, borrowers may have the advantage of halting payments if their business hits a thick patch.

#2. Lower or no-interest rate
Your friends aren’t a big market, which means they would never try to gain anything by taking advantage of your financial needs. Anyone who has taken out a small loan realises how suddenly it can turn into a big loan. Also, one of the biggest concerns of obtaining a bank loan is the interest charged on the credit. When dealing with someone you know, often they’ll lend you the money free of charge or for considerably less than a lending company would.

#3. No paperwork
Applying for a loan from multiple lenders can damage your credit score. Sometimes it’s best to skirt all the frustration if you assume you’re not eligible to get a reasonable loan. Taking out a personal loan from a friend can make the process effortless and quick.



Despite many benefits to investors and lenders, obtaining a loan can be complex. Here are some of the social and financial consequences of accepting a loan from a friend or relative:

#1. Social awkwardness
Of course, receiving credits from loved ones isn’t uncertain from a legal perspective. Mixing business and happiness can also hinder the usual social interactions.

One of the disadvantages of owing money to loved ones is that it may open an outcast dialogue about your spending habits. Whereas a bank won’t tell you to stop going out to dinner or scare you from buying a new car, lenders who are also friends or family may probe you for spending money when you have yet to repay your debt. Fixing clear payment terms and sticking to them can help borrowers avoid these uncomfortable moments.

Accepting a loan from a friend or family member may allow you to dodge banks and lenders while securing a lower interest rate. However, failing to set up a clear and defined duration for repayment could be uncertain for your personal relationships. Taking time to make a solid plan and documenting your agreement formally can help individuals feel empowered and treated moderately.

#2. Limited funding
Banks and online loan providers have much better pockets than most people you know. While borrowing from your relative, you can’t ask for as much money as you require. You can only get the amount of money their pockets permit.

#3. Lack of clearly defined terms
Another issue with borrowing from family rather than with a bank or online personal loan marketplace is the uncertainty of terms. When to pay back, how much, how often, to where, and other questions remain unclearly defined, which can lead to very uncomfortable feelings, tensions, and sometimes a deterioration of the friendship altogether.


#1. Loans from lenders
Obtaining a loan from a third-party lender tends to be a more flexible option. With more lenient requirements and better rates, you can avoid the embarrassment and drive out a challenging financial scrap. Also, you can acquire short-term loans with no guarantor.

#2. Emergency funding
You can also save some money and keep it as your emergency funding. It helps you stop adding to your debt with each bump in the road. An emergency fund can help cover all the things you don’t keep in your budget. You can use your emergency fund to handle these stressful circumstances and make it easier for you to stay focused on getting out of debt. This also serves to save that embarrassment you feel when you feel when you ask your friends or family for financial aid.