The Federal Reserve Bank of New York has reported that U.S. household debt increased by $184 billion in the first quarter of 2024. Delinquency rates rose as well across all types of loans. It can be hard to refuse a family member’s request for a friendly loan if your dear nephew or son-💧in-law comes to you asking to borrow money but you might want to consider these statistics before you help out.

Consumers have limited options of where to turn when they need to get their hands on some cash when times are tough. They can go to their banks if their 澳洲幸运5开奖号码历史查询:credit scores are healthy but they'll have to pay interest on top of the amount of money they borrow. They may also have to pay loan initiation or 澳洲幸运5开奖号码历史查询:origination fees in some cases. These are fees charged by lenders to process applications. They can be as much as 1% or more of the amount of the loan.

The quickest and least expensive way for individuals to get their hands on some much-needed money is often to go to a friend or a family member and ask for a loan. You might want to examine🌼 some considerations of family loans and the potential consequences before you comply.

High Cost of Family Loans

澳洲幸运5开奖号码历史查询:Financing isn't cheap. That's why many people turn to family and friends. These ﷽lenders may be less inclined to charge you anything such as interest on top of the amount of money they advance you.

“Americans are turning to friends and family for loans rather than the big banks to avoid spiraling into more debt and defaulting on regular payments,” explains , co-founder of 澳洲幸运5开奖号码历史查询:American Consumer Credit Counseling. “Even though consumer and student loan debts have each surpassed the trilᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚlion-dollar mark, young Americans are still the most willi⛎ng to help out friends and relatives in need, which could exacerbate their own debt as well.”

“By treating loans between family and friends🌸 as a business transaction, consumers can safeguard themselves from damaging an important relationship because of money,” Trumble adds. “Although you might feel inclined to help out a loved one with finances, it’s imp﷽ortant to openly communicate about repayment expectations so that no one is left in the dark, or worse: in the red.”

Before You Lend

Treating a loan to a friend or family member as a business deal is the first way to ensure that the process doesn't ruin a great, valuable relationship. Experts advise taking a few steps before opening your pocketbook and giving your financial support to family members.

Keep Your Expectations Low

Don’t expect to get your money back. Go into a family loan situation with the mindset that you’ll never see the money again. That’s not saying that you won’t but you won't be as disappointed when and if the loan does go un-repaid.

“There are no such things as loans among family and friends—they’re gifts,” says , author of the book Money Smart. “They arꦛe a gift if🔜 you give or receive them and they are a gift if you get paid back.”

Expect Slow Repayment

Kelly stresses that the nature of a family loan with no professional obligations attached changes the loan dynamic. “The reason people need loans from friends and family is that they typically cannot get a loan anywhere else,” she explains. “The financial institution won't give them a loan, or if they do, the interest rate will be too high to be helpful.”

She stresses that people who borrow from family and friends don’t consider these loans as seriously as they do money borrowed from banks so they're far more casual about returning the money. It’s a no-win si💝tuation, Kelly notes.

“With close family and friends, you really cannot demand 澳洲幸运5开奖号码历史查询:collateral or interest payments and expect to keep a good relationship," she🅰 adds.

Make a Checklist

, a senior financial consultant at McGraw-Hill Federal, a New Jersey-based 澳洲幸运5开奖号码历史查询:credit union, adv💯ises putti𒈔ng together a checklist if you plan on lending cash to a family member.

“Sometimes an individual may have no 澳洲幸运5开奖号码历史查询:credit history or may have damaged his or her credit so severely that they will need to seek other alternatives,” he said. “A lot of times, this member will have no choice but to approach a family member for a loan. I always reco⛄mmend to friends and family members to approach this as a business tran🦄saction.”

Here's an important list of questions to ask yourself before you lend if you’re the family member or friend being asked to advance the funds:

• Has this person asked me for money in the past?
• If so, was I paid back?
• Was I paid back promptly?
• What is the likelihood that I will be paid back this time?
• What are the funds to be used for?

Another important question you'll want an answer to is how they plan on paying the loan back. “This is extremely important because most have good intentions,” Murphy added. “However, if their income is🌺 already accounted for paying all their other obligations, where will your 'promise' come in?” Murphy said having to hold both parties accountable can mitigate many of the problems linked to family loans.

“Just make sure the contract covers the all-important question of payments, particularly what happens if the loan goes unpaid,” he said. “You may need to develop a couple of different repayment contingencies to provide for different scenarios."

Remember the IRS

You might decide to give up the idea of loaning the money and consider it a gift. This makes it much easier🐽 to keep your relationship intact, especially if you never expect your loan to be repaid. You should be aware of an important factor, however.

The 澳洲幸运5开奖号码历史查询:Internal Revenue Service (IRS) establishes tax rules for gifting. The annual tax exclusion for gifts is $18,000 in 2024, an increase from $17,000 in 2023. You'll owe a gift tax if you give more than this.

No Secrets

Make sure that your spouse is on board with your decision to lend money to a relative if you’re married. “If you lend a family member money, you can cause a strain to your cash reserves, but much more importantly𒊎, to your marriage,” Murphy said. “T𓆏his is crucial. If approached, make sure you involve your partner right away.”

The Bottom Line

There’s no guarantee that a family loan won’t bring disappointment and conflict but that won’t necessarily stop you from helping the people you love. 澳洲幸运5开奖号码历史查询:Having a plan is the best thing you can do if you agree to lend money to your family or a friend. Be sure to set expectations, 澳洲幸运5开奖号码历史查询:draw up a contract, and make sure you📖r spouse knows that th📖e loan is happening.