If you don't do it right, it could become a disaster!
6 Must Haves If You're Going to Borrow from Your Parents
by Jeanine DeHoney
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As teenagers, we often couldn't wait to reach adulthood so we could be independent of our parents, but sometimes even as adults, we have to rely on our parents for emotional support and financial support. There are pros and cons to borrowing money from parents. One positive is the lack of need to worry about your less than stellar credit history before you borrow money. One drawback is that it can cause both you and your parents to overstep familial boundaries.
If you find yourself having to borrow from your parents, here are six tips to make it easier on everyone.
- Really assess your needs and wants. We all want extravagances at times. If you can't afford to buy those extra luxuries with your paycheck, then you shouldn't ask your parents to foot the bill. If your water heater needs to be replaced, or a repairman needs to come out to service your refrigerator so a month's worth of food won't go bad, or you come up short for closing costs for your new home, you are looking at a need. In contrast, taking an expensive cruise with your friends is a want.
- Come up with a payment agreement. If you were to borrow money from a bank, there would be a payment agreement that you'd have to follow. Your parents should get the same or even more adherence to a financial agreement. Identify who is the lender and who is the borrower. If it is both you and your spouse, list both names. Write down the loan amount, if any interest will be charged, and when the payment is due (monthly or bi-weekly). Next, all parties who are part of the agreement must sign and date the document. You can also have it notarized.
- Don't ask for more than is needed. Don't inflate the amount of money you want to borrow from your parents to get something extra. Your parents might not divulge to you that a loan right now might cause them financial hardship or delay plans for their dream trip. If you must borrow money, listen for any hesitation in their voices and heed the unspoken clues like a worried look on their faces to see whether it is doable on their part. If it isn't, find another monetary source.
- Keep the financial lines of communication open with your parents. We all run into difficult times. You may get laid off from a job, develop an illness, need car repairs, or have to pay an increased fee for daycare. Let your parents know if you are having a problem paying back the loan and why. Renegotiate the payment agreement to everyone's satisfaction. Make half payments instead of full payments until you can get back on track. Most parents will understand and will see how they can help you even by just offering moral support.
- Show your parents how you are working to become financially fit, so borrowing money from them won't be a common occurrence. Let your parents know about your financial flaws and the financial lessons you've learned, so they can see how you now have the knowledge to change your past. Sit down with them after a family dinner to discuss the budget you now have in place. Show them how you are paying off your high interest credit cards. Let them know that you are willing to see a credit counselor for a complete financial overhaul.
- With the increasing costs of living, many of us are bound at one time or another in our life to look to our parents for a financial loan. We have to be mindful though that they want nothing more than to see us empowered and capable in all areas of our life. Even though they are invested in us as parents and will continue to invest in our goals, they are not loan officers. We should never take them nor their financial offers of help for granted.
If circumstances have put your family in debt, find out how to conquer your debt by creating a plan personalized to your family's budget and lifestyle.
Reviewed September 2017
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