Virtually everyone has found themselves in a sticky financial situation. Unfortunately, it can happen to even the best of us. Sometimes emergencies happen, unexpected events take place, and without the proper savings, these occurrences can seriously disrupt our budgets and financial health. In cases like the aforementioned, the temptation to borrow money from a relative, friend, or financial institution can be great. While borrowing money has helped people in certain situations, an awareness of the potential and probable dangers is still paramount.
Interest Rates Can Be Astronomical
Assuming that an individual does not receive a loan from a relative or friend, they are
almost guaranteed to owe interest
on top of the original amount of borrowed funds, affirms Credit. When lending services loan money to customers, they are not doing it to help the person in need. Lending services are loaning out money to help their own company and make a profit. Therefore, in many scenarios, borrowing money can be even costlier than simply going without whatever the borrowed funds were intended for.
Nine times out to ten, lending services are not the best places to seek financial loans. It is almost always better to seek out help from a family member or trusted ally. However, even this can come with potential risks and pitfalls.
Personal Relationships May Experience Tension
While borrowing money from personal friends and relatives comes with less financial risk, the act can potentially breed tension within relationships between loved ones. Most people loan money with the expectation that they will be paid back, preferably within a certain time period. Issues definitely have the potential to arise if someone is told they will be paid by within a certain time period and then it does not happen.
Therefore, Credit furthermore suggests for both parties to have written agreements whenever borrowing money occurs. Although some people may view the aforementioned agreements as unnecessary, written terms can ensure that both parties are clear and aware of each other's expectations. A written agreement can also serve as a great reference in case one or both people become confused or uncertain of the original terms surrounding the borrowed capital.
In the best of situations, a person who borrows money from his or her relatives or friends pays back the money within the agreed upon time. Unfortunately, not all scenarios play out as they ought to. Some people borrow money from loved ones without ever intending to pay it back. Other individuals borrow funds with the intention of returning them at a later date, only to find out that they can't do so for whatever reason. Each of the foregoing instances is very problematic and can engender serious issues. Depending on the situation, relatives or friends may be within their rights to sue the person who has borrowed money and failed to pay it back.
A Final Word
The preceding, potential circumstances are why each person should tread carefully regarding borrowing money. Sometimes going without something is better than finding oneself in massive debt or having a treasured relationship ruined.
Authored by Gabrielle Seunagal