The Dos and Don'ts of Borrowing Money from Friends and Family
From Dennis Cail, CEO and co-founder of relationship-based lending platform Zirtue
As the new school year progresses, high school students are already planning their next big steps. For many, it’s earning a college degree. However, the rising costs of tuition and the related expenses associated with higher education present a considerable challenge. It is essential to acknowledge these financial concerns while exploring innovative solutions that can ease this burden.
It’s no secret an overwhelming amount of students turn to student loans for financial assistance. Today, Americans owe $1.75 trillion in student loan debt, both federal and private. The number shows more than half of students leave school with debt, at an average of $28,950 per borrower. Instead of relying on high-interest loans to pay for college, you might be surprised to discover who in your inner circle would be willing to offer support.
As the CEO and co-founder of relationship-based lending platform Zirtue, I know firsthand how you can borrow money for college from friends and family while maintaining that positive relationship. It’s been a game-changer for both lenders and borrowers who’ve considered all aspects of the process. Here are the essential Dos and Don’ts for asking family and friends for financial help.
DOs ✅
Ask the right person. Borrowing from friends or family can often feel awkward and uncomfortable. When deciding who to ask, consider how strong your relationship is, who you trust, who values education, as well as who would be financially able to give you a loan.
Set a formal agreement and be specific about the loan terms. Have an open conversation about the loan terms and cover all the details like the initial balance, repayment period, payment schedule, interest rates, and penalty fees. Most importantly, get it all in writing to formalize the agreement and keep everyone accountable.
Create a payment schedule. If you decide to pay the loan over time, outline the full payment schedule you and your lender agreed upon. You want to make the process as transparent and stress-free as possible for your friend or family member to help reduce any anxiety they may have about lending you money.
Offer to pay interest on the loan. Show gratitude to your lender by offering to pay interest on the loan as if they put money in a high-yield savings account (approximately 1.5-2%). This will make the loan financially beneficial for both parties.
Maintain Professionalism. Set the proper “loan tone,” and treat the loan with the formality you would any business transaction. Just because you’re asking a friend or family member, this is not the time to be casual. You should treat this with the same professionalism you’d treat any bank or financial institution.
DON’TS ❌
Don’t borrow more than needed. It can be tempting to ask for a larger sum to cover any unexpected costs, but borrow only what you need because it demonstrates respect for the lender's finances and makes repayment more manageable for you.
Don’t hide financial difficulties. Transparency is crucial for maintaining trust and preventing misunderstandings. If you encounter difficulties making a payment, make sure to communicate that with your lender.
Don’t make them feel obligated. Like you, your friends and family are making a big financial decision. Ensure to approach it in a respectful and considerate manner. Acknowledge they may have their own financial commitments and responsibilities. Regardless of their decision, remember to express gratitude for their consideration or willingness to help.
Don’t avoid communication. By maintaining open communication, you uphold not only your request but also the integrity of your connections. If you avoid discussions, especially when problems arise, it can lead to potential issues and mistrust.
Asking to borrow money from family and friends can be intimidating, but with the right approach, you can maintain strong relationships! 🤝
