Family Funds

By Julia Price

January 13, 2014 3 min read

It really happened. Your dream house just went on the market and the asking price is much lower than what it's worth. The owner wants to get rid of it immediately to retire and finally get that dream Florida boathouse she's been planning for her whole life. Your real estate agent happens to be her best friend, and you get let in on the information before anyone else. But there's a problem: You can't afford it!

As you consider taking out a bank loan, you suddenly remember that your brother is sitting on a huge pot of startup investment gold (as one of the first people to buy Apple stock), and he always told you to reach out to him first if you needed financial help. Yet the thought of asking a family member for money has your head spinning -- will borrowing from him come with an extra order of stress on the side? At the same time, you know how much headache comes with the high interest rates of a bank loan. You're stuck.

No matter the amount of money (perhaps it's only a few hundred dollars to get new tires for your car), borrowing from a family member with a monetary surplus can feel like a sticky situation. But it doesn't have to be. Just as you would sign a contract with a bank, approach your family member with the same type of plan. It's important to establish that you want to borrow the money, not that you're expecting them to hand it over as a gift. Several factors go into the lender's decision-making process:

1) Trust. Have you proven yourself to this family member as someone who keeps his word? If not, you may want to consider new options. If you are known to be loyal, they will probably be happy to help you out.

2) Fear. What if you don't pay them back? How will it affect your relationship? Go out of your way to remind them that you will be legally bound to pay them back and that you're happy to sign documents to that accord. Do what you need to so as to assure them that your personal relationship will not be jeopardized by the loan.

3) Confidentiality. If they lend money to you, will the rest of the family expect the same financial support? Promise them confidentiality if they request it. Do not involve other family members.

4) Resentment. If they say no, will you resent them? Before you even start asking the question to borrow, make sure you establish (and truly feel) that regardless of their answer, you will not take it personally, and then don't. If you feel like you can't detach from the emotions involved with asking, then don't ask.

If you both decide to move forward with the loan, pick a reasonable date to start paying them back (with or without interest, whatever is stated in your deal) and make sure that you do not miss the first payment. In fact, plan to make your first payment early to ease any fear they might have about their investment.

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