How to Borrow Money from a Friend or Family Member in 11 Easy Steps

How to Borrow Money from a Friend or Family Member in 11 Easy Steps

Knowing how to borrow money from a friend or family member might be a better option than taking out a loan from a bank, and you won’t have to worry about a credit check. However, whether this is a wise strategy to borrow depends on managing your obligations.

Obtaining a friend or family member loan may be a complex financial and social procedure. It might be a sensible decision for everyone, provided you and your “lender” are clear on your conditions and treat the loan seriously.

These 11 steps will show you how to borrow money from friends and family in a mutually advantageous manner that will ensure your relationship’s survival:

1. Examine all of your available financing choices.

Before you go out and borrow money from your pals, see if there are any other personal loan choices available. For various reasons, borrowing through an online lender like GreenDay Online rather than a friend or family member may be preferable.

Aside from a loan, you may also seek financial assistance. For example, if you have low credit and would not qualify on your own, you might ask the individual to be a cosigner on a loan. Alternatively, you may question whether they’d be prepared to provide the savings collateral for a savings-secured loan.

If you’ve exhausted all of your options, try crowdsourcing or borrowing from a peer-to-peer lender.

The advantages and disadvantages of borrowing money from friends and relatives


  • It prevents you from being approached by unscrupulous lenders.
  • Lower interest rate (and, in general, more liberal repayment conditions) than you might get from a conventional banking institution
  • Small-dollar loans between friends may be funded instantly using convenient apps like Venmo and Google Wallet.


  • Awkwardness or hurt sentiments are possible outcomes.
  • Lack of transparency on loan conditions might lead to misunderstanding and conflict.
  • Both parties may be legally exposed if loan paperwork is missing.
  • Paying off your debts will not boost your credit score.
  • A miscalculated repayment might jeopardize your personal relationship*.

2. Take into account the financial and social hazards

Make sure you understand and are ready to accept the hazards of borrowing money from friends and relatives. This loan will be subject to the same risks as other loans.

According to Shaolaine Loving, a Las Vegas attorney, “you will be establishing a legally enforceable contract permitting (the lender) to sue if (you) break any of the repayment obligations.”

There’s also the possibility of the connection being harmed. You can’t afford to expect that everything will go well. Be sure you’re ready to borrow correctly to prevent damaging the relationship.

Also, think about who you’re stealing from. Even if you’re a flawless borrower who has never missed a payment, your lender may find it difficult to separate the loan from your relationship.

“Many individuals are hesitant to borrow money from a family member or friend, but if you conduct the business transaction properly, it can be a win-win situation for both of you,” Carla Dearing, a former CEO of a financial wellness organization, said.

3. Consult the appropriate person

If you’re unsure how to ask for a loan, be sure you’re approaching the correct person.

You must be respectful of the other person’s financial circumstances and duties. Asking for a loan from someone who can’t afford it or doesn’t believe in you will place everyone in a complex and unpleasant situation.

Don’t ask a friend or family member to lend you money if you’re not sure they can afford to do so. Limiting your requests to persons you have a positive and close connection with is also a good idea.

Be aware of not-so-close friends and relatives leaping at the opportunity to act as your lender, just as you should be when looking for a loan cosigner. They might have a hidden agenda.

4. Go through all of the loan specifics.

When applying for a loan, you must be completely honest about what you need and ask for. Make sure you go through everything about the loan, including the original sum, how it will be repaid, and other stipulations.

“For instance, whether you want interest or late penalties added on, and whether you want to pay in installments or one big amount,” Loving said.

Furthermore, according to financial counselor Lisa Chastain, “the conversation should include whether the individual borrowing can genuinely afford to pay back the loan, and when,” Make sure you address “what will happen if the borrower does not repay the loan.”

Preparing for the worst-case situation before it happens puts you in the greatest possible position to deal with it.

5. Make a payback schedule for your loan.

If you’ll be paying the loan off in installments, make a detailed timetable and share it with the lender.

“Knowing when to anticipate payments and when the loan will be fully returned can alleviate any concern your family member or friend may have,” Dearing added.

“You demonstrate your appreciation for the loan’s favor by making payments as straightforward and stress-free as feasible for [them],” she continued.

6. Locate a loan arbitrator

It might be beneficial to enlist the services of a middleman while you work out the terms of the loan and how to put it up.

“Find a neutral third party who can assist you in reaching an agreement that is acceptable to both sides,” Chastain said. “Make sure both parties feel like they’re receiving a decent deal, and agree on particular loan terms, conditions, and a repayment schedule.”

Negotiating terms should be avoided at all costs. If your family lender, for example, wishes to charge a specific interest rate, that is their choice. As a borrower, consider different lending choices as you would if looking for a personal loan at a bank.

7. Be adamant about paying interest.

Paying interest on the loan is another way to demonstrate your reasonable faith as a borrower.

“Insist on paying interest at least equal to what your family member/friend would receive in a high-yield savings account,” Dearing said.

After all, this is a favor for you, and paying interest guarantees that both parties profit financially. You’ll almost certainly obtain a cheaper interest rate than a bank would, and your lender will be able to see their money increase.

“With bank rates as low as they are these days (below 1%), you may be doing your family member a favor by asking for a loan and proposing to pay 2 percent or 3 percent interest,” Dearing added.

8. Don’t take on too much.

You must be realistic about your loan and ensure that you do not borrow more than you can afford to return. It will have an impact on your relationship.

“The borrower should only agree to conditions that they believe they will be able to keep,” Loving added.

It’s a red sign if you’re scared you’ll meet snags along the way or be unable to repay the loan. Rework your agreement until you’re convinced you’ll be able to keep your part of the bargain.

9. Put the agreement in writing after it’s been finalized.

“Protect the personal connection by establishing an upfront, straightforward, and equitable payback schedule,” Dearing said. “Write it down, and then stick to it.”

Like the master promissory note for federal loans, a customized promissory message is typical for two people to document a loan arrangement. In writing, getting your loan conditions protects your and the lender’s interests.

“An agreement will enable you to be clear about expectations so that you don’t anticipate payment early or get upset about nonpayment if conditions aren’t established from the beginning,” Loving added.

10. Always make payments on time.

Keep up with your payments once you’ve agreed to the loan and received the cash. Check with your bank to see whether you can set up automatic direct deposits or transfers.

“The borrower must not believe that because it’s a friend or family member, it’ll be OK if [they] don’t pay on time and according to the loan conditions,” Chastain said. “Treat the arrangement as though it were a bank or other formal lender.”

11. Communicate about the loan in a proactive manner.

You should aim to be proactive and often speak about your debt as you pay it off. Request that your lender provides you with payment confirmation every time they receive payments from you. This will help you avoid any mistakes and identify any transaction problems.

And if you have any problems, speak to a friend or family member as soon as possible.

“If it turns out he can’t make the payments as promised,” Loving added, “he should contact you immediately with a credible suggestion of other payment choices.” “In this manner, the borrower does not seem to be attempting to avoid their commitments.”

Robert D. Coleman