Borrowing Money from Family: A Delicate Matter
Borrowing money from family can be a sensitive subject, especially when you're an adult. As Sherrie Palm, founder of the Association for Pelvic Organ Prolapse Support, discovered, even at an advanced age, it can be a humiliating experience.
The Dilemma
In 2014, Palm needed $3,000 for a trip to Nepal. With limited financial resources, she reached out to her parents. While her father eagerly agreed, her mother, who had grown up with financial hardships, was hesitant. However, the next day, Palm's mother provided the funds without indicating a repayment plan or timeline.
Unexpected Drama
Five years later, a family member discovered a sticky note detailing the loan. This discovery sparked a soap opera-esque drama among Palm's extended family, who were hoping to inherit the family farm but had been excluded from their grandparents' will.
Unresolved Issues
Palm's mother's developing Alzheimer's prevented her from addressing the loan. As a result, the issue remained unresolved until Palm's father passed away in 2020.
The Importance of Clear Expectations
Financial therapist Oliver Schnusenberg emphasizes the need for clear terms when borrowing or lending money within a family. "Set clear terms and preferably in writing," he advises. "What exactly is the loan? What is it for? What are the terms of repayment?"
By establishing a written agreement, everyone involved can feel more comfortable and there is less room for misinterpretation.
Consider Interest
To avoid resentment and to compensate for the potential loss of interest on the loan, Schnusenberg recommends that family members lending the money charge a small amount of interest.
Borrowing from Family: Pros and Cons
Despite its potential pitfalls, borrowing money from family can offer advantages, such as:
* Access to funds without credit checks or background investigations
* Potentially lower interest rates
However, Schnusenberg cautions against borrowing from family members due to the potential for damaged relationships.
Communicating about the Loan
When asking a family member for a loan, it's important to choose the right time and manner. Schnusenberg suggests hinting at the need without directly asking to gauge their reaction.
Involving Other Family Members
Whether or not to inform other family members about a loan depends on the specific situation. If the loan involves elderly parents or may affect the family estate, it may be wise to include other siblings.
Defaulting on the Loan
If a family member defaults on the loan, it can create significant awkwardness and resentment. Legal action is often not a viable option. The lender's only recourse may be to refuse future loans, which was not their intention to begin with.
Conclusion
Borrowing money from family requires careful consideration and clear communication to avoid potentially negative consequences. By establishing clear terms, considering interest, and approaching the situation with sensitivity, it is possible to navigate the complexities of family loans.