Oh, boy. You’ve exhausted all other means to get you through a financial tight spot, and now you’ve decided to go to your family and ask for a loan. During the 2008-10 recession, 55 percent of respondents said they lost ground financially, and of those, 42 percent said they borrowed money from friends or family to get by, according to PewSocialTrends.org. That data might not make you feel any better about the conversation you’re about to have, but if you prepare for it, you can make it a lot easier for you and your relatives.
Look for Assets You Can Liquidate
You have exhausted all other means, right? If you receive structured payments from an annuity, you might be able to sell those for a lump sum. You’ll forfeit future payments, but it might be worth it to relieve yourself of your current situation. After all, it’s your money to use when you need it.
Create a Savings Plan
Before you show up with your hand extended, put your income and debts in a spreadsheet or ledger so you can disclose what happened, where you are now and how this loan will help you. Include your plans for repaying the loan, and include time and interest (if you think that will apply). Also prepare a budget and show Mom, Dad or Uncle Money how you’ve taken steps to reduce your expenditures in effort to reduce your debt.
Don’t negotiate, either. If your relative says yes, say thank you and commit to the repayment structure. Make the loan official by putting it in writing and set a due date for monthly payments. Don’t ask for more money, and don’t ask for a lower interest rate. If the terms are unreasonable, thank the family member for considering your request and walk away.
Don’t Miss a Payment
Do not take advantage of your relationship by making late payments. You set up the terms based on your budget, and you committed to a repayment plan. If you can, make payments early and try to repay the loan ahead of what you promised.
Don’t Make Stupid Purchases
Don’t show up at your lender’s home flashing the latest high-tech gadget, a new bag from Coach or a tan from your trip to the Bahamas. You borrowed money because you were in need and couldn’t meet your financial obligations. Your relative loaned you money so you could pay off your debts, improve your credit and build your savings, not so you would have more disposable income to blow on frivolous things.
Say Thank You
Don’t send an expensive thank you gift for the bailout. A heartfelt thank you sent by snail mail will let your relative know how much you appreciate his or her help.