There are a number of reasons you may be looking for a loan, whether it’s for medical bills or to consolidate debt, the world thrives on credit. Something that many people consider when looking for a loan is to ask family or friends, and while this works for smaller loans, it can pose issues for larger ones.
As a provider of car title loans in Southgate CA, we’ve heard all kinds of horror stories of taking loans from family or friends from our customers. Whether it causes a schism in the family, or you lose a lifelong friend, loaning from people you know can come with its own set of ramifications.
Here is an overview of why you shouldn’t take large sums of money off family or friends.
No Contract = No Guarantees
When you take loans from a professional provider, you will sign a contract which outlines a number of specific agreements between the two parties. These agreements determine: the time in which the loan is to be repaid; the amount to be repaid in installments; and the expected interest which the loaner is to pay.
Undetermined Time Frame
All of our customers who have utilized our car title loans in Southgate CA know how much time they have to fully repay their loan. Whereas when it comes to borrowing money from friends or family, they will often be open-ended with no agreed upon expected date of which the full amount is to be reimbursed. This leaves both parties to assume what the other is doing, usually prioritizing their own needs over the needs of the other. This can lead to loans that extend over years and cause fights when presumed repayments haven’t been met.
Undetermined Repayment Schemes
Loan providers will typically work with you to determine how much you can afford to repay each month without limiting your access to necessities. When it comes to friends and family though, one can feel less obliged to make frequent or sizable repayments due to the nature of the relationship. This can create tension as, again, assumptions will be made by both parties about the frequency and size of repayments, which leads to confusion and fights.
Undetermined Interest Rate
While most family or friends won’t demand interest on their loans, they may come to regret doing because the allotted time to repay a loan may not meet their needs. Interest rates work as a buffer for loan providers to help them cover the cost of administration and the lack of access to that money over that time.
If you do agree upon an interest rate with your friend or family member who loans you money, this will be heavily affected by lack of agreement upon the time frame and repayment schedule.
It Encourages Bad Borrowing Habits
If every time you need more money than you have, you turn to your family or friends for a loan, then you may become reliant on them for that financial security. This can in turn hinder one’s understanding of financial responsibilities and money management, and can lead to more pitfalls in the future. Especially in those situations where loans go unpaid and begin to accrue to amounts which aren’t manageable.
Relationship Loans are Based on Emotion, Not Logic
Receiving loans from friends or family usually comes from a place of emotion, not logic, as the loanee expects that due to the nature of the relationship (e.g. mother and son) the other party is meant to loan them money. These emotional based choices can also lead the lender to overlook the red flags in the loanee’s behavior, such as bad spending habits or lack of financial responsibility.
You May Feel Obligated to the Lender
Borrowing money from friends or family can result in you feeling like you’re in their pocket, as they have done this huge favor for you. This can completely change the dynamic of a relationship, as the lender may feel that you owe them something more than just the loan repayments. Even if the lender doesn’t make you feel like you owe them something, you may still feel obligated to them due to the situation.
Times Like These
Considering the division and insanity that the Coronavirus has caused us, we are more reliant than ever on our friends and family for help and support. Although at this time we should also consider the importance of having good relationships with these people, everybody is struggling whether financially or mentally due to the pandemic. At times like these, relationships should be preserved and celebrated rather than potentially affected by a loan disagreement.
Working With The Experts
Now that you’re aware of the risks of loaning off friends or family, you may be wondering what kinds of loans are more suitable. Here at Quick Title loans we provide car title loans in Southgate CA, and are happy to work with you to find a repayment scheme that works for you.