How To Borrow $ From Family And Friends

There will be less chance for misunderstanding if you do the loan in a business-like manner.  This is the case even if your friend doesn't consider a loan to you a business transaction

If the loan is $10,000 or more, interest should be charged. The Applicable Federal Rate (AFR) sets the minimum on personal loans. The rate varies monthly. Interest on your loan should at least be the minimum prescribed for the month the loan is created. You can find the AFR at: www.irs.gov/app/picklist/list/federalRates.html . If there is no interest, or interest is less than the AFR, the amount loaned may be deemed to be a gift which could have unexpected tax consequences to the lender.

If the loan is under $10,000 there doesn't have to be interest. The loan still won't count as a gift.

It bears repeating that borrowing money requires an "exit plan" -- how and with what you're going to pay back. Otherwise, it should be a gift rather than a borrowing. And, since you may have to borrow again in the future, planning this properly may smooth the way for future loans.

Pretend that your friends and family members are a bank and treat them similarly. Be honest about your financial situation. If you can't see your way through to payment at the present time, but you might be able to repay sometime in the future, say that.

If your friend agrees to give you a loan, it could either be through a bank, through an unregulated service such as Virgin Money (www.virginmoney.com ) or directly as a personal loan. (To learn more about use of a bank, see the next section). Banks and other services charge a fee. 

Once you have the money, live up to your agreement. If you can't make an agreed payment, let your friend know immediately.

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