Almost everyone at some point in his or her life has asked a parent for money. While this is mostly a harmless habit at a young age, the older you get, the more dangerous this becomes. Borrowing money from parents, or any family member, is a risky business that might cause family tension or lead you down a bad financial path. Before you borrow money from your parents, you should consider the other alternatives you have. You should also understand the process of how to borrow money in the real world.
When to Borrow from Your Parents
Borrowing money from your parents should generally be a last resort, and it should always be done responsibly with both parties understanding the ramifications. Before you borrow money from parents, consider if there are any other options. One of your first steps should be to view your credit scores so that you can see if a bank loan would be a better option. If you have poor credit and aren't likely to qualify for a loan, then you might consider turning to your parents for monetary help. However, you should still be sure that you are being a responsible adult.
If you do borrow money from your parents, make sure you only take an amount that you can afford to pay back. Suggest that they perform a credit score check of their own so that you can all sit down and discuss the importance of credit and repaying debt. If they have their own credit problems, then you shouldn't take a loan from them. After you have reviewed both of your financial situations, then you should decide if a loan from your parents is a good idea for everyone involved. Before borrowing money from your parents, make sure it is the best decision and that everyone understands the rules behind the agreement.
Set Clear Boundaries and Rules
Even though you are borrowing money from family, it's still essential to set up clear rules. This will give you a better understanding of how to borrow money in the future. You need to have clear guidelines regarding the repayment of the loan. Discuss exactly when and how you will make the payments. Determine if the payments will be monthly or if they will occur as you get the money.
It's best to treat a loan with your parents like a regular loan. Stick to the payment plan and view your credit score on a regular basis to make sure you aren't taking on too much debt. Don't ask for an extension on a payment unless you really need it. You should also consider establishing a formal agreement, like you would with any other loan. Have this written out so that both parties can sign it and look back on it as proof of the agreement. This might help prevent any future arguments regarding the payback procedures.
The Potential Downfalls of Borrowing from Parents
Borrowing money from your parents might cause some tension in your relationship, especially if you can't pay them back. They may even lose their trust in you. If you owe them money and they fall on hard times themselves, they may have to take legal action against you. Borrowing money from parents can also lead to tension or different expectations than before. Parents might use the loan against you in order to take more control over your life. A parent who has given a child a loan might think he or she can control their decisions and tell them where to live and what to do. If you have set up proper boundaries prior to the loan, this shouldn't happen. Unfortunately, money often causes people to do things they wouldn't otherwise do.
Another reason why borrowing money from your parents is not always a good idea is because it sometimes sets a bad example or teaches a child the wrong lesson about money and debt. Since it is in a parent's nature to be giving and to try to accommodate the needs of a child, these loans are often not expected to be repaid. If a child borrows money from parents and doesn't have to repay it, this can send the message that debt doesn't have to be repaid. This is dangerous territory and can lead to bad credit or inability to get a new loan in the future.
Borrowing money from family members, particularly parents, may seem like a great idea at first. It prevents you from going to the bank or maybe even from paying interest. However, it can be a costly affair that may lead to tension in a relationship. If you want to borrow money from parents, make sure it is your last resort and that you have a clear agreement regarding how and when you are going to repay the loan. Always be sure that you do pay back the loan as quickly as you can. This will help you avoid many of the pitfalls that borrowing from a family member can have.