It can be tempting to ask friends or relatives to lend you money. But you need to think carefully about whether you can afford to repay it, and can cope with what might happen if you can’t.

What to consider before borrowing from family and friends

Borrowing from a family member can provide emergency money and help you avoid borrowing at very high interest rates, such as using payday loans and doorstep lending (also known as home credit).

Are both you and the person you’re thinking of borrowing from certain it wouldn’t harm your relationship if you don’t repay or take longer to repay the whole amount borrowed? Then this might be a good option (especially if you’re not charged interest on the loan).

However, there might be a risk that this could harm or even end the relationship if you don’t repay or take longer to repay what you borrow.

If you’re the borrower

Work out a budget

If you want to borrow from a partner, family member or friend, make sure you draw up a budget beforehand. This will help you see how much money you have left for repayments after paying your current living expenses.

It’s a good idea to get together your current account and credit card statements from the last three months (or longer, to take account of one-off costs) before you do your budget.

Consider the risk

It’s always stressful if you can’t afford paying back anything you owe. But it can be even worse if you’re leaving a loved one out of pocket, and it might harm your relationship with them.

That’s why it’s important to work out your budget and make a new repayment plan as soon as you find yourself in difficulties.

Make sure you let the person you borrowed from know what’s happening as soon as possible. If you’re struggling with debts, there is help available.

Put your agreement in writing

It’s a good idea to get something in writing, clearly spelling out how much will be repaid and when. It’s also important to keep records of when the repayments are made, so you both know exactly how much is still outstanding.

Having a formal agreement in place can protect you. It’s hard to think about, but if the borrower died with the debt unpaid – you’d need proof to claim from their estate.

If a large sum of money is involved, it’s important to seek professional advice from a solicitor or an accountant to make the arrangement more formal.

Alternative ways of borrowing money

If you’re not sure whether you should borrow from a friend or family member, there are other credit options – even if you have a poor credit rating.

Beware of false friends

Be very wary if you’re offered a loan by someone you know casually – for example, from having seen around locally or who’s a friend of a friend – they might be a loan shark who lends illegally and the loan could cost you a lot more than you think.

If you’re the lender

Before you lend money

If a friend, partner or family member asks for financial help, it can be hard to refuse.

But there’s no point getting into difficulties because you want to help or because you feel bad about saying no. This is especially the case if you’re not sure whether you can either really afford to lend to them or could cope with the impact of not having the loan repaid.

You also don’t want to risk losing a good friend, breaking up with a partner or falling out with a family member because of money.

Take the time to work out your own budget before lending to anyone. Don’t be embarrassed to encourage the would-be borrower to work out their budget as well.

It will be less awkward to do this before you lend them money rather than having them to do it if they have problems repaying you after having borrowed the money.

What will you do if the borrower can’t pay?

You might be confident the person you’ve lent money to will be able to pay it back in full. But you still need to consider what you would do if they can’t.

Make sure you talk about, and agree, what would happen if the borrower lost their job and couldn’t pay the money back, or you needed it back in a hurry.

How you might deal with this type of situation is an entirely personal decision. But it’s one you need to think about before lending money to someone you know, no matter how sure you might be that they’ll repay you.