by Ruth Belena

Created on: September 06, 2010   Last Updated: September 20, 2010

There are times when it is not appropriate to borrow money from family members. Borrowing big sums of money can lead to serious family disputes and could be the cause of a family breakdown, or it could put an end to a relationship. You should think carefully even before accepting a generous offer of a loan from a family member, whether this is an interest-free loan or you are willing to pay back more than you borrow.

It is important to consider both the consequences and the alternatives, before you decide to borrow from family members.

• Consequences of borrowing money from family members

Lending money is a risk if there are no legal requirements or formal contracts between borrower and lender. All members of your family ought to take steps to  protect their assets through wise investment, or should keep their money in a savings account. If you were to approach a family member and ask to borrow money, however small the amount, that is a risky financial transaction. You could be certain of paying back all the money you borrow, within a given time, but if you fail to do this, you will put yourself and the lender into an unfortunate situation. 

A close family member may or may not persist in trying to reclaim an outstanding debt, but will feel bad about being let down if the money you borrowed is not repaid in full. You could also feel upset and it could lead to a serious family dispute, with lack of trust between people who were once close, loyal and affectionate family members.  

Even when some form of contract or formal agreement has set up, a family member might feel it would be wrong to use the law to retrieve the money you owe. This would increase tension within your family and could cause a serious rift, with family members being forced to take one side or the other. 

• Alternatives to borrowing money

If you are experiencing real financial difficulties, or you are badly in need of something you really do not have the money to pay for, there are better ways to resolve the situation than to borrow money from family members. You may need the assistance of a financial expert to sort out your debts and arrange a loan. Alternatively, you could do some serious thinking about your priorities and your spending habits. You could then use some budget planner worksheets to set yourself a financial plan, and decide only to

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