Money Advice Service

It can be tempting to ask friends or relatives to lend you money. But you need to think carefully about whether you can afford to repay it and can cope with what might happen if you can’t.

Pros and cons of borrowing from family and friends

Borrowing from a family member can provide emergency money and help you avoid forms of borrowing with very high-interest rates, such as payday loans and doorstep lending.

If both parties are certain it will not harm a relationship with a family member if you don’t repay, this is a good option as it is normally interest free.

If you’re borrowing from a friend, be aware that if you don’t repay, this could end the friendship.

Work out a budget first

If you want to borrow from a family or a friend, make sure you draw up a budget beforehand, to see how much money you have left after paying your current living expenses.

As part of this, look at your current-account and credit-card statements from the last three months.

It’s a good idea to get together your current account and credit card statements from the last three months (or longer to include one-off costs) before you do your budget.

Use our Budget planner to take control of your finances

What if you can’t afford to repay it?

It’s always stressful if you can’t afford repayments but it can be even worse if you’re leaving a loved one out of pocket and it might harm the relationship.

That’s why it’s important to work out your budget and make a new repayment plan as soon as you find yourself in difficulties.

Make sure you let them know what’s happening as soon as possible.

Here are some other guides that will help you if you’re struggling with debt:

Alternative ways of borrowing money

If you aren’t sure whether or not you should borrow from a friend or family member then there are other credit options, even if you have a poor credit rating.

What to consider before lending money

If a friend or family member asks for financial help, it can be really hard to refuse.

But there’s no point getting into difficulties yourself because you want to help, or because you feel bad about saying no.

You also don’t want to lose a good friend or fall out with a family member because of money.

So here are some important things to consider before lending any cash.

Can you afford it?

Take the time to work out your own budget before lending to anyone.

Can they afford it?

Don’t be embarrassed to encourage the would-be borrower to work out their budget as well.

It will be less awkward to do so before you lend them money than once they find themselves in difficulties.

What will you do if the borrower can’t pay?

You might be confident the person you’ve lent money to will be able to pay it back in full, but you still need to consider what you’ll do if they can’t.

This is a deeply personal decision but one you should think about before handing over any cash, no matter how sure you’re that they will repay you.

How formal will the arrangement be?

It’s a good idea to get something in writing when you’re lending to family members.

Be aware that if you lend money to family and friends regularly (and make a business out of it) you might need to be authorised by the Financial Conduct Authority (FCA).

Having a formal agreement in place can protect you. It’s hard to think about, but if the borrower died with the debt unpaid, you’d need proof to claim from their estate.

This article is provided by the Money Advice Service.