Reasons To Avoid Taking Loans From Friends And Family

There might arise certain financial emergencies requiring immediate fund requirements. What can be a better example than two brothers estranged due to work commitments. Armaan was engaged in business while his younger brother Rohan was settled abroad with a decent job. The first wave of the recent Covid-19 pandemic had hit Armaan's business leading to huge losses. In order to maintain business continuity, he approached Rohan to extend financial support. Rohan was compassionate for his brother’s loss and decided to support him. What they never saw coming was the second wave that led to total shutdown of Armaan’s business. He was forced to go on a job while promising Rohan of repayment as soon as possible. Rohan was worried as he lent his savings to Armaan and the pandemic led to a salary cut in his organization. Repayment from Armaan was delayed but nothing could be done except waiting for Armaan to settle down. He didn’t want to worsen the already strained relation with his real brother and make him feel more uncomfortable.

This was one of the many cases witnessed by most people in their daily lives.

Read to understand why it is not a good idea to borrow from your friends and relatives and what might be the possible alternative to this:

Reasons why borrowing from friends and relatives might not be a good idea

Below mentioned are some of the reasons to avoid borrowing from friends and relatives:

1. No interest loans:

Borrowing from friends and relatives are often in the simplest terms. Most of the time, these borrowings are interest-free as friends and relatives usually lend with the motive of compassion and intent to help rather than financial gains. But still, there is an interest loss to the lender that might make them unwilling to lend often. Also, the period of the loan is usually not precise and might extend to months or years. Therefore, if you want financial support for an extended period, resorting to friends and relatives might not work in your favour as was the case of Armaan and Rohan.

2. Reputation on risk:

Bringing financial aspects to the relationships can change it forever. Over the period, money may dominate the relationship, and you will have to be careful while dealing with your lender. Inability to repay on time might further strain the relationships. An unintentional random mention of your borrowing in a gathering may make you uncomfortable among your family members, and you may feel like distancing yourself from them. It’s always better to never fall into this situation.

3. Vague terms:

The terms are either minimal or no terms at all. Usually, people do not know how much is due, when the repayment will be made. And sometimes, the lender has no assurance whether the repayment will ever be made. These terms usually affect relationships in the long run. While one may want to specify clear terms, it never happens as the relation is prioritised. So, emotions dominate rather than practicality.

4. Inability to pay:

This may become a nightmare for your relationship. If you fail to repay your borrowings to your family members or friends, the lender might not express it, but the relationship is strained forever. Back of the mind, there will always be a feeling of loss to the lender, and you might have a difficult time rebuilding the relationship and, most importantly, trust. The possibility is, it might never be the same as before. And things like these always spread like wildfire among other relatives or your friend circle. This will create a sense of distrust in you among your other relatives and friends as well. Had Rohan knew about the shutdown of Armaan’s business before lending him, things would have been different between both of them.

5. Upset Relationships:

Failure to satisfy the lender’s expectations or meet your commitments might upset your relationships. While borrowing from friends and relatives, most people often commit the period within which they will repay. Standing by that commitment becomes essential for maintaining a healthy relationship.

Many people resort to various apps to avail easy loans of small denominations. With high interest rates, it gets accumulated and soon the borrower falls into the debt trap. Some of these cases end with drastic outcomes like suicides. Two of the many such stories about how borrowing from such apps and pressure from collection agencies ended up with the suicide of the borrowers were highlighted by Times of India and The New Indian Express.

It’s far better to go for trusted platforms like indiagold than such platforms. With indiagold, you can avail gold loans at the most affordable rates than other platforms that can solve your financial needs as well as save you from falling into such debt traps. It’s better to avoid mental pressure by availing loans from high-interest bearing platforms and end up taking drastic steps.

6. Awkwardness

When finance enters relations, situations might become a little awkward between you and the lender. Things get formal, and you both might want to avoid discussing finances whenever you meet. There might always be a sense of hesitation inside you whenever you are on the same floor. This awkwardness persists till repayment and, in some cases, even after the repayment. In the above scenario, Armaan will always feel awkward facing Rohan because of the loss Rohan suffered. Things will never be the same as before.

What’s the alternative?

Suppose you face a financial crunch. So, instead of borrowing from friends and relatives and facing the above repercussions, it’s always better to resort to formal lending arrangements from financial institutions and lenders. One such arrangement is a gold loan. Being a secured loan, it is available at the most affordable rates. With India gold, you can easily avail of a gold loan at your convenience. The benefits of availing of a gold loan from Indiagold:

1. Affordable interest rates: In Indiagold, gold loan interest rates start at just 0.77% per month. For every Rs. 1000 borrowed, you just need to repay Rs. 7.7 at the end of the month. What can be more affordable than this to meet your emergency financial needs?
2. The entire process at your convenience: Gold loan application can be made through the Indiagold website or by giving a missed call at 1800-123-999-888 or WhatsApp at +91-9310366544. The process of taking gold loan involves assaying of your gold ornaments, KYC and filling up 1 application form. This process usually takes 30-40 minutes depending on how much gold needs to be assayed.
3. Safety: As soon as the loan amount is disbursed, your gold is packed in GPS-enabled packets and stored in safe lockers with insurance from New India Assurance Co. Ltd. After repayment, Indiagold will safely return your gold within the next working day. The entire responsibility of your gold is with Indiagold once the loan manager steps out of your house after disbursal.

Bottom line

While borrowing from a bank, only your asset is at stake in case of failure to repay. But in the case of borrowing from friends and family members, relation and reputation are at stake. Therefore, keeping friends and families as a last resort is always preferable in a financial crunch and meeting your crisis independently. With such easy financing arrangements available at your disposal, putting relations at stake is not the best option out there.