Borrowing money from friends can be tricky and often puts pressure on relationships without honest and clear communication. There are few things that are more uncomfortable than pursuing friends who have not paid back their loans. However, by following some simple etiquette rules, you can smoothly browse these situations and avoid unnecessary drama.
Should you borrow money from a friend?
Sometimes borrowing money from friends and family is the best choice for your financial situation. You may not be eligible for a credit score for your loan. You may have an emergency fee that requires quick funds. No matter what your situation is, when you borrow money from a friend, there are clear things and things you don’t do to maintain your relationship and avoid drama.
Stay transparent
Tell your friends exactly why they need money and what money they intend to use. Ambiguous reasons for why a loan is needed may make it difficult for your friend to agree to a loan. Try not to make excuses, but be honest and upfront. It is also important to consider the other party’s financial situation before asking to borrow money from them. If your friends can’t afford your money, don’t put them in a tough place. You shouldn’t pay for your friends, either. If they say they can’t give you a loan, don’t put any pressure on them further.
Establish a loan agreement
Just like any other loan, borrowing money from a friend should also come with a loan agreement. This should include how much to borrow, when to repay the loan and whether any interest is charged. It should also be mentioned what happens if your friend doesn’t pay. While signing an agreement between friends seems unnecessary, it will protect both parties in the long run. If you borrow more money, you may even want an attorney to file this agreement.
Guaranteed repayment
If you are borrowing money from a friend, make sure you can repay the loan. It is important to discuss how they wish to repay, such as through Venmo, check or cash. You then have to budget accordingly to avoid payment. Remember that it is crucial if you value your relationship with your friends to fulfill their promises to repay them.
Consider tax impact
If you borrowed money from a friend, you might consider the tax impact. Loans between friends and family are taxable for both parties. If the loan is worth more than $10,000, any interest payment can be considered taxable income. Additionally, if the loan is forgiven, it can be considered a taxable gift. It is important to understand what your loan means so you or your friends won’t be surprised.
Have you borrowed money from a friend before? What is your experience? Let us know in the comments.
Read more
Dave said: Prepare for the future
How to beat inflation – 10 actionable tips
