I'm in a Financial Emergency, Can I Borrow Money From My Family?

If you’re facing financial difficulties, you may think of turning to friends and family for help. But a loan from friends and family could come with some strings attached — and it might affect your relationship with the familiar lender. 

Loans between friends and family are common. One survey found that 60% of Americans had loaned cash to a friend or family member. And, unfortunately, 35% experienced a negative outcome, such as a damaged relationship, lowered credit score or lost money. 

Whether or not family loans are a good option depends on a few factors: 

• The size of the loan

• Your ability to repay it

• Your relationship with the person who is granting the loan 

There’s no “one size fits all” approach to a loan from friends and family. It can be a smart financial choice for some families, and a terrible one for others. 

Before you even contemplate how to ask a family member for money, there are some important considerations to keep in mind. 

Pros and cons of getting a loan from friends and family

The decision to borrow money from friends and family deserves careful consideration. 

Here are some of the advantages and disadvantages: 

Pros

• Lower interest (or no interest): You may be able to get an interest-free loan, or one with a lower interest rate than comparable formal loans. 

• No lengthy application process: If there is mutual trust, a simple loan agreement will usually be sufficient. 

• No effect to credit score: In many cases, your credit score will not be affected by taking out a loan from friends and family, because nothing will be reported to the three main credit bureaus. 

• Flexibility: In some cases, the family member may be flexible on when the loan is paid back, and more willing to work with you if your financial situation changes.

Cons

• Strained relationships: A major downside is that, if things go wrong, you could end up damaging your relationship with the friend or family member who loans you the funds. Even if things go smoothly, being indebted to someone can change the relationship dynamic.

• No credit-building: Informal loans from family and friends won’t be reported to the credit bureaus, which means they won’t help you build a positive credit history with your repayments. 

• The money taboo: If you’re experiencing financial struggles, even bringing it up to loved ones can be embarrassing and difficult. Money conversations are so taboo that Americans would rather talk about mental health, sex and politics with their friends, rather than discuss personal finances. 

Alternatives to friends and family loans

If you need cash quickly to cover an emergency or a job loss, there are some alternatives to a loan from friends and family:

• Emergency fund: If you have an emergency fund, this is the first bucket of money to draw from when financial troubles strike. 

• Personal loans: If you have good credit, you may be able to get a personal loan from a bank or credit union. Interest rates can be substantial, but they’re typically lower than credit cards. 

• Home equity loans: If you own a home, you may be able to tap into the equity you’ve built up through a HELOC or other home equity loan. These typically offer good interest rates, but there may be upfront fees. 

• Peer-to-peer loans: There are various online platforms that allow you to borrow money from strangers. Interest rates can be high — but there won’t be the awkwardness of mixing finances with family and friends.  

• Credit cards: Credit cards are typically a last-resort option, due to their high APR. If you do use credit cards, it’s wise to pay them off as soon as possible to avoid excessive interest costs. 

For those with existing credit card debt, Tally† may be able to help. Tally is an app that lets qualifying Americans consolidate their credit card balances to save money on interest. 

How to ask a family member for money

If you do decide to ask for a loan from family or friends, how do you actually go about it? Here are a few things to keep in mind: 

• Be honest: Be transparent about how much money you need, why you need it and the other options you’ve explored or considered. 

• Put your relationship first: Remember that your relationship with this person is more important than anything else. If they say yes, honor your commitment to repay them and communicate clearly. If they say no, move on without letting it change your relationship. 

• Be mindful of their financial situation: Sometimes, a family member will want to help, but may not be financially able to do so. It’s important to approach the right person in your family, and to keep the health of their own personal finances in mind. 

• Have a repayment plan: Remember, you’re asking for a loan, not a gift. Having an actionable plan to pay it back is very important, as is being upfront with that plan. For example, you could explain that you will write them a $200 check every month, until the debt is repaid. 

• Discuss clear terms: Will there be interest involved? How long will it take to pay off the loan? Will there be an option to borrow more, if needed? Be very clear and upfront about all the various terms and conditions. 

• Plan ahead for problems: Make an actionable plan for what will happen if you fall behind on payments or if you’re unable to pay. It can be awkward to talk about this, but it’s better to address it upfront. 

Bottom line

In the end, getting a loan from friends and family can work out, but it’s not without its complications. If you have other options, it might make sense to explore those first. 

And ultimately, if there’s one clear takeaway it’s this: Family is more important than finances. 

React calmly and respectfully, regardless of how a family member responds to your request. And, if you’re worried about a loan potentially damaging your relationship, look into other funding options. 

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.