You may be able to approach your bank for assistance if you have an excellent credit score. Keep in mind, however, that you will be responsible for paying interest on that sum in addition to the amount of money you borrow. In certain instances, you may also be required to pay costs associated with the beginning or origination of the loan. These are the costs that the lending institution will charge you to complete your application. They may make up as much as one percent or even more of the total amount that is being borrowed.

There is still hope for you even if this doesn't seem feasible, if the thought of going to a financial institution makes your stomach turn, or if your credit is in such bad shape that you feel like a rowboat with a hole in it. There is still another route that may be used to get a loan. Going to a close friend or relative and asking for financial assistance through a loan is the easiest way to get the much-required funds you need.

High Cost of Family Loans

Obtaining financing doesn't come cheap. Research online or in person to determine how much you will have to pay in interest and other fees to your bank or financial institution. Because of this, many individuals turn to their family and friends. These creditors may be less likely to tack on any additional fees or interest to the amount of money they loan you.

According to the findings of a study carried out by Finder in 2018, it has been estimated that individuals borrow up to $184 billion yearly from their friends and relatives. The average amount borrowed from a friend or family member was around $3,300, and almost one-third of those polled had taken out a loan in the last year.

Before You Lend

The first step in preventing a positive and beneficial relationship from being damaged by the act of lending money to a friend or family member is to approach the transaction as if it were a business transaction. Before handing money to family members or opening your wallet to help support them, financial advisors recommend taking a few precautions beforehand.

Keep Your Expectations Low

Don't hold out hope that you'll receive your money back. When taking out a loan from relatives, you should do it with the assumption that you would never get the money back. That is not to suggest that you won't; it means that you won't be quite as upset if and when the loan is not returned as originally intended. According to Mary C. Kelly, Ph.D., author of the book Money Smart, there is no such thing as a loan among family and friends; rather, the transactions are considered presents.

Expect Slow Repayment

Kelly emphasized that the nature of a family loan, in which no professional requirements are connected, alters the dynamic of the transaction. She added that the most common reason individuals have to borrow money from their loved ones is that they cannot get financing from any other source. They won't be able to get a loan from the financial institution, or if they do, the interest rate will be unreasonably high, and it won't be worth it.

She emphasized that individuals who borrow from family and friends do not take these loans as seriously as they do from banks. As a result, they are far less conscientious about repaying the money they have borrowed from these sources. Kelly recognizes that there is no victor in this conflict.

Create A List To Check Off.

Suppose you want to lend money to a member of your family. In that case, Kevin Murphy, a senior financial adviser at McGraw-Hill Federal, a credit union located in New Jersey, recommends that you compile a list of questions to ask before making the loan.

"Sometimes a person may not have a credit history at all, or the individual's credit may have been destroyed to such a terrible degree that the individual will need to look for other options," he said. When everything else fails, this family member may have no option but to ask another family member for financial assistance. I often tell my close friends and family members that they should treat this situation as if it were a commercial transaction.

Remember the IRS

You may conclude that giving the money as a gift is a better option than considering it a loan. This makes it much simpler to maintain your connection, which is particularly helpful if you do not anticipate receiving any repayment for the loan. On the other hand, there is something that you have to keep in mind. When giving presents, you will need to remember the guidelines Uncle Sam has set down. The Internal Revenue Service (IRS) established a gift tax regulation of $15,000 beginning with the 2018 tax year and continuing forward.