Borrowing from those you are closest with is often a risky proposition. Doing so essentially makes you beholden to that person. In some cases, especially with parents, your loan comes with strings attached in the form of behavioral expectations. Despite these challenges, you do get some potential financial and psychological advantages from borrowing from friends and family instead of from banks or loan companies.
A major financial benefit of borrowing from a friend or family member is that you avoid the normal finance fees that come with bank borrowing. This point assumes, of course, that your lender isn't so entrepreneurial-minded that he does want to build in interest. Otherwise, you get the advantage of having money upfront, at the time of need, without the drawback of having to pay the interest on the payback.
Less Financial Pressure
While family or friend lenders can put emotional pressure on you to act responsibly with the money, the financial pressure is normally less than with a bank. You likely get more time to repay. In fact, your family member or friend may not even ask for a repayment timeline. She may simply offer a "pay it back when you can" approach. You also don't generally have to worry about property repossession, such as when buying a car with a loan, and won't usually get pressure-filled collections calls from a friend.
Potential Debt Forgiveness
You shouldn't borrow money that you can't or won't pay back in a timely manner. However, one advantage of borrowing from a close family member or friend is the possibility that the debt is forgiven. For instance, parents may offer to forgive a kid's loan balance as part of a college graduation or wedding gift. Expecting this benefit when you ask for the money isn't responsible, but it is a nice potential add-value.
The bond you likely have with the family or friend is typically higher than the one you have with a bank or lender. Even though lenders have legal and contractual obligations, they can sometimes defraud or deceive unknowing customers when setting rates and terms. With someone close to you, the risks of you getting duped in the loan arrangement are likely lower.
Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.