How to Decide If You Should Borrow Money from Friends or Family

January 21, 2025

Perhaps you’ve heard the cliché that goes something like, “the best way to make sure someone remembers you is to borrow money from them.” There’s a reason that it’s generally not a great idea to borrow from those you care about, but as long as you go into it fully prepared to accept the consequences, it can be done.

Assuming you wish to maintain a friendly relationship with the person you’re borrowing from after the fact, here are some tips for doing it successfully.

Tips on borrowing money from family and friends without losing both forever

Make a plan to pay it back before you ask. You’re much more likely to get help if you attach the request to a plan to pay it back. Decide how much you can afford to pay each month, if possible, and share that plan with the person you’re asking. If you’re not able to make monthly payments, give them a timeline for when you’ll expect to have the money. The sooner, the better. To sweeten the deal, offer to pay interest, ideally in an amount that’s slightly higher than they’d earn in a savings account. This is still likely to be lower than you’d pay on a credit card or personal loan.
Sign a promissory note. First of all, this puts your agreement in writing, so there can be no dispute in the future about what’s expected. Also, if for some reason you end up not being able to stick to the agreement, the person you borrowed from will at least be able to write the loss off on their taxes. You can find free templates for promissory notes online – here’s one site, or check to see if your EAP has an online legal library.
Consider putting up a form of collateral. One way to add some security to your lender is to offer them a back-up plan if you’re unable to make payments. For example, if you’re asking your girlfriend to loan you money to pay tuition, and you have some valuable art that you’d rather not sell unless absolutely necessary, offer the art as collateral. You’ll have to put this in the promissory note, then be prepared that if you end up defaulting on the loan, she can sell the art to recover her money. In the meantime, this could take some of the pressure off your relationship.
Be aware of perceptions. If you borrow money from someone in a moment of great need, you should expect that they are going to be very sensitive to future displays of excess from you until they are paid back. It’s probably not a great idea to show up with a luxury handbag on your arm or a pair of $200 shoes on your feet if you still owe someone money. The expectation when borrowing from family and friends should be that it’s an absolute last resort, so if you can afford to buy new stuff beyond your basic needs (or you’re not willing to sell items of value), it’s best to pay them back first.
Expect awkward holidays until you’ve paid back. Unless you’ve borrowed from someone who views their help to you as a gift rather than a loan, as long as money is outstanding, gatherings with the person you owe could be awkward. This is why it’s super important to prioritize paying them back above all else except your basic needs like shelter, food, and basic transportation.
Be willing to explain large purchases. Buying a new home or pulling up in a new car while still owing someone in your inner circle can seem like a slap in the face to them. However, there are legitimate reasons you may do either of those things before you’re able to pay the money back that you owe. Maybe your car lease ran out, and you just traded it in for the same payment or better, or perhaps you’re moving into a new home that was sold to you for way below market value. Whatever the reason, make an effort to explain it unless you’re able to pay your loan off right away.
Try to pay them back earlier than expected. Even if you can’t pay the loan off in its entirety, paying more than the monthly agreed-upon amount will go a long way toward proving your intent not to take advantage. Consider adding even an additional $10 to your monthly payment as a sign of goodwill when you’re able (just make sure you adjust your payment schedule to reflect the earlier pay-off!).

When it’s a bad idea to borrow from family or friends

Generally speaking, if you’re often finding yourself in a financial pinch, you may want to avoid turning to family or friends for help unless you see a clear light at the end of the tunnel and know for sure you can pay them back. As a popular proverb goes, “Before borrowing money from a friend, decide which you need the most.”