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When Personal Loans Become a Little Too Personal

[Jan 19, 2010.]


These days, finding a bank that's willing to lend money can be difficult to say the least, especially for borrowers who have bad credit. Online personal lenders are an option for borrowers with bad credit, but many people prefer to go the old school route and borrow from a friend or family member.

The recent release of the PNC Group Wealth and Values Report indicates that intra-family personal loans are way up due to the constricted bank lending environment.

There are several reasons why intra-family personal loans can be problematic.

1. No Repayment Schedule

The first issue that people usually run into when borrowing from--or lending to--a family member is the notion of a repayment schedule. Often, it's an "I'll pay you back when I can" type of scenario.

Unfortunately, approaching a loan with that mindset can cause problems for both borrowers and lenders. For the borrower, without a set repayment schedule, that personal loan may end up last in line when it comes to paying other bills. For lenders, this casual arrangement can result in outright non-repayment.

When taking out or making a personal loan with a friend or family member, talk repayment schedules.

2. Need-Based Thinking

The next thing to be careful of, closely tied to the first matter, is the idea that a personal loan should be based on "need." For example, such and such friend or family member has more money, so they "need" the money less than the bad credit borrower. Therefore, the bad credit borrower doesn't need to worry about paying the loan back in a rapid fashion.

This attitude, although frequently it's not meant to offend the lender, is possibly the quickest way in all of human relations to completely and utterly ruin a relationship with someone.

3. Family and Friends Want More Than Money

Unsecured personal loans between family and friends not only present complicated issues for the lenders, but also for the borrowers. For example, family and friends often want more than money when they make a personal loan. They may, for instance, want the borrower to feel obligated or to return more love their way.

The bad credit borrower, in some cases, may view the unsecured personal loan with a more business-like approach, not knowing that the lender wants more than money as repayment.

Never Say Never, But Be Careful

It would be silly to say that a personal loan from a friend or family member is always a bad idea. Nevertheless, it is wise to be extremely careful of this arrangement.

It's smart to at least check the interest rates and terms with online bad credit personal lenders before taking out a personal loan from a family member.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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