Blog posts on the internet advising you against personal loans, often suggest you to borrow from friends and family. Apparently, you would not be pressurised into producing credit records and paying high rates of interest. However, borrowing from friends and family has its own set of disadvantages. For instance, it can make you feel inferior or answerable to them in other matters as well.
You can instead borrow from a licensed money lender. Here are some reasons why borrowing from friends and family is after all not a good idea.
Relatives and friends are often forced to lend money due to pressure. They lend you money just because they do not want to hurt you. Such loans can hurt their prospects, as they might need the money as well. They might face a financial emergency anytime.
It could be even worse if you are the one who cannot afford it. Borrowing from a licensed money lender is done through a formal agreement and you can comfortably repay within the stipulated time.
It often happens that if the lender and borrower are friends, they do not reach an agreement regarding the repayment schedule. In such cases, the loan becomes ‘open-ended’. The misunderstanding is at both ends, and both lender and borrower are confused about the term of repayment. The same is the case with the interest rate. On the other hand, with a licensed money lender, these things are discussed beforehand.
You might not feel compelled or obliged to repay a loan taken from a family member. The lending relative may not coax you for money out of courtesy. There is always an expectation that there might be some relaxation in the terms of repayment. When there is none, usually hard feelings come out of it.
In some cases, you might not be able to prioritise them even when you want. An example is when you are in debt for your credit card expenses along with money borrowed from your uncle.
Pending loans from friends can make you not want to meet them. Likewise, family gatherings become embarrassing for a lot of people. You could feel uncomfortable not only around your lenders, but around everyone who knows about it.
If you have had an unpleasant financial equation with a friend or family member, they could avoid you. Coming across as a borrowing pest can shut communications down with many people.
It is awkward for your family to ask for their money back, and they can grow hostile towards you. This might create trust issues in the future as well. Having trust issues among family member and close friends are not healthy. On the other hand, borrowing emergency money from a licensed money lender creates no awkwardness. Credit is a reality, and with proper paperwork and flexible terms and manageable ROI, repayment becomes easy. Loans from moneylenders are much easier to get than personal loans from banks.
Borrowing money from family and friends seems to be the easy way out, but it is fraught with danger. Take a loan from a licensed money lender and learn to manage your finances on your own.