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How To Borrow $ From Family And Friends

Before You Ask For Money From A Friend, Think Through The Finances And Your Continuing Relationship

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Step 1. If you haven't already, review our information on How To Deal With A Financial Crunch to see if there are alternatives that would decrease the amount you need, or eliminate it all together.

Step 2. Determine how much you need. Of course expenses relating to a health condition can vary greatly, and unexpected expenses can occur. As an aide, look at our information on Financial Planning and complete the interactive charts. Be honest with yourself and don't ask for too much OR too little. You may not get all you ask for in any event.

Whether you receive money as a loan or a gift, it's tax free to you so you get to keep all of what you borrow.

Step 3. If you're considering asking for a loan:

  • Consider what kind of loan to ask for. For example, are you going to ask that the person to:
    • Loan you the money directly?
    • Co-sign a personal loan with you (in which case you would be the primary person to repay the loan. Your friend would have to pay if you don't.) Think about what rate of interest you should suggest paying. A friend may say that no interest is necessary. However, to have the transaction considered to be a loan, interest is required at least equal to the minimum specified by the IRS (see offsite link to find the minimum rate.)
    • Take out a loan on your behalf, possibly a home equity loan?
  • Think about an exit plan. In other words, how and with what are you going to pay the money back (including interest), and over what period of time?
    • Be prepared to show the person you're approaching for the loan your calculations indicating how and when you can afford to pay back the loan. If you volunteer to show the person this information, you'll be sending the messages that you've done your home work, you're serious, and you intend to repay the money.
    • If the result iof your calculations is that you are not likely to be able to repay the money, consider asking for a gift instead of a loan. It will help keep the relationship in tact.

Step 4. Before you ask for money:

  • Think about what you will say, including your response to likely questions. It is not advisable to come of as being entitled to the money.
  • Consider the setting in which to ask.
  • If you are married or have a partner, consider bringing the person with you when you request the loan. According to Money Magazine, it's more difficult to say "no" to two people.
  • Decide what you will do if the person says no, or "yes," but to less than you requested, or insists on real business terms. Will you not let it affect the relationship? Will you stop speaking with the person? After your ask for money:

Step 5. Keep the relationship in mind.

  • Let the people who help you know you're grateful. A hand-written thank you note or a small token is always appreciated. A token gift can be something as simple as making the person's favorite cake or dropping off something inexpensive that suits the person (such as a plant for a gardener).
  • Don't stop speaking to someone who loans or gives you money. Keep the lines of communication open even if it feels "simpler" to simply lose touch. It'll be good to have old friends around when you get past this financial crunch. (Machiavelli would also likely add that you may need help in the future and burning bridges is never a good idea.)

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