Quite often when you’re in a financial dilemma or crisis, and all doors seem to be closing on you, you tend to look out for convenient solutions like seeking help from a family member or a close friend.
You may think it’s cost-effective and less time-consuming to obtain a loan from them as compared to a authorised money lender, but taking a loan from a relative or friend can lead to other complications in the long run which may damage your relationship.
Here’s a look at some fallout scenarios which you must consider before seeking their help.
1. Lack of proper documentation
Proper documentation is crucial in any business dealing as it lists out the contractual obligations of both parties. A binding contract includes the loan amount, loan term, and repayment terms, and conditions.
Family members and friends may miss out on this important step when giving you a loan, which can lead to a disastrous outcome as both the borrower and lender may have different expectations of each other. In most cases, this process will be overlooked by relatives or friends as they offer the loan based on trust (and at times, such cases end up in the courts where loved ones end up suing each other).
For instance, the lender may feel they have certain shareholder rights in your business just because you borrowed from them for your new startup. Or you may feel that it’s acceptable to default payment as they’re close relations, and would understand your situation. This will inevitably put a strain on your relationship as owing money can affect the purest of friendships.
However, if you take a loan from a licensed moneylender or a financial institution, you can rest assured that you’ll be protected by the legal terms stated in the contract. Learn about secured loans vs unsecured loans here.
2. Lack of trust and loss of self-respect
Most of the time, when you borrow money from a closed one, it is with zero interest and no repayment timeline. Hence, you may take a longer time to repay the loans.
This can lead to family members or friends scrutinising your lifestyle habits and passing unpleasant remarks about you. This will eventually put a strain on your relationship, creating trust issues as family members may feel that you’re taking advantage of their kindness. This can also result in you losing your self-respect, dignity, and mutual trust.
3. People tend to judge your actions and habits
When you have taken a loan from your family members or friends, it is only natural that they start judging you based on your spending habits. For instance, if you buy a new piece of jewellery, take a short holiday, or even go out to a fancy dinner, your close ones may criticise your actions while they await the loan to be cleared fully.
Uncomfortable conversations are bound to take place during family gatherings, and social awkwardness with friends with regard to the loan may occur. There will always be a subconscious feeling of indebtedness, and other friends and family members may start avoiding you if the details of the debt are carelessly mentioned.
4. Money can destroy relationships
Whenever we borrow money from a loved one, we run the risk of ruining the relationship. In most cases, when you approach someone close to you for a personal loan, the repayment terms and payback time are rarely discussed seriously.
If the loan repayment is left unsettled or is delayed and/or extended, you’re leaving your loved one at a loss of funds. Resentment will surely build up over time and this will likely affect your relationship negatively.
Plenty of emotions come to play when you’re interacting with someone you’re financially indebted to. If the cousin you borrowed from is ever in need of money, and you are still unable to pay them back, the feeling of guilt will burden you, and you may feel responsible for the crisis he is in.
Bottom line
As convenient as borrowing money from someone near and dear is, a loan taken from a friend or family member comes with its own set of risks.
To avoid these scenarios and conflict, visit a licensed moneylender or financial institution for a hassle-free urgent loan solution. The money lending industry in Singapore has been evolving over the years and is regulated within the finance industry, so rest assured you’ll be in good hands.
At Soon Seng Credit, loans come with competitive interest rates and flexible payment options.
Click here to apply for a Personal Loan from us.
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