What to consider before borrowing money from family members – Relative Loans

If you are in a situation where your ability to borrow money has suddenly been limited, possibly because the bank has said no or because you have ended up in RKI, then there is the opportunity to borrow money from family and acquaintances.

Borrowing money from family or friends

Borrowing money from family or friends

However, it is not a decision you should make without considering any consequences, for what do you do, for example, if you suddenly are unable to pay your relatives as agreed. Here are some of the considerations to make before borrowing money from family or friends.

There can be many benefits to borrowing money from a relative who has the opportunity to help financially. There is often no interest, and you do not have to worry about having missed something, so that you are suddenly in a situation where you have to pay surprisingly much in interest.

It is also not uncommon for us to borrow from family, either when we are a student and borrow a little for the deposit, or when we are older and borrow a little, to finance a construction project or a family party. And fortunately, these loans often go well, and all parties get back as agreed without any problems.

Potential conflicts


But what about the times are not going well and conflicts are coming because one of the parties is not doing as agreed. You say you do not know your family until you are in a situation where large sums of money are involved, for example in inheritance cases and with loans of large sums.

And if you are in a situation where you are in a major conflict with a family member over money matters, you may well be annoyed that you did not pay the extra percentages it would have cost to borrow the money in the bank. So you have to think carefully before you lend money, and vice versa, before you borrow from your relatives.

And one has to consider the situations where things can go wrong. For example, what do you do now if the person suddenly stops making payments as agreed? Or what if one’s lender suddenly says they want all the money back in for a short period of time. This, and other possible issues, must be considered before making an appointment.

You can make a debt letter

You can make a debt letter

However, there are several things you can do to avoid conflicts. For example, you can make a debt letter so that the agreement is not only oral but also written. Here you have to make sure that all the details are included. For example, it may be interest (if any) and payback time.

In this way, one cannot stand later, and have doubts about what it was previously agreed upon. However, it is not necessary to disclose every circumstance in a debt note. For example, there is no need to include provisions on the settlement of the loan.

A good advice – Check out the TAX


Another good advice is that you just check with Good Finance, because there may be rules that you just have to remember to bring. If you make a family loan with interest, then you must, for example, report the annual interest rate to Good Finance. And if the loan is interest-free, the loan can, under the right circumstances, be considered a gift and therefore 15% in gift tax must be paid. This can be avoided, but it is important to familiarize yourself with the rules so that there are no unforeseen challenges for the family loan.

Otherwise, you can consult with professionals before entering into an appointment. It may save you too much trouble if you are considering a larger loan agreement with a family member.

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