The Perils of Lending to Friends or Family

December 19th, 2007

With the cost of loans from high street lenders rising during the current credit crunch more and more people are turning to their friends for loans. ‘People in the UK made loans to friends and family over the course of the last year that totalled £26 billion, according to a new study.’

‘Research carried out by PayPal found that some 29 million adults have lent relatives or friends cash during 2007 and are owed an average of £898.52 each.’ While the benefits of these arrangements can be either very low interest rates of even interest free loans, the obvious drawbacks should be taken into account.

Lending or borrowing from friends or family is a very good way to ensure that families will fall out and friendships break up. The very reasons that the loans seem so attractive in the first place can make them sources of tension. Lenders can feel they are being taken advantage of and borrowers that they are being unduly pressured.

Sure enough, ‘more than a quarter of people in the UK have loaned family members money, but 9.6 million lenders admit they have fallen out with relatives over the loans.’

‘Everyone will, I’m sure, have either borrowed or lent out money to friends and family, often on the spur of the moment, however as the study has shown these potentially small amounts of money can soon add up,” said Cristina Hoole from PayPal UK. On average we’re each owed almost £900 and with Christmas just round the corner perhaps we should be looking to call in some of those unpaid loans rather than relying on credit to see us through.’

There is little advice to offer those who see borrowing from friends or family as a good option. Some of them will experience no problems whatsoever, some will be putting friendships at risk and jeopardising relationships. Common sense and communication between the parties involved will minimise these risks but they will be present until the loan is repaid in full.

This entry was posted on Wednesday, December 19th, 2007 at 4:36 pm and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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