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What Is a Family Loan?

A family loan is a kind of loan that is given from one family member to another. A family loan can be a formal agreement or an informal arrangement. When it comes to family loans, the nature or degree of the relationship between the two parties do not really matter. As long as they have a familial relationship, the loan can be considered a family loan.

Family loans are perhaps one of the most commonly used loans. For one, the informality makes the exchange of money very easy. Borrowers do not have to fill out forms and go through a credit check. Instead, they only have to approach a family member and ask to borrow money. Of course, this convenience can easily be offset by complications that can arise from family loans.

What if the borrower cannot pay the loan back? This has happened with so many family loans, and the usual result is strained family relationships. This is one reason that some people avoid family loans as much as possible. There is also the issue of the terms of payment. A borrower may want to borrow money with as little interest as possible - to the detriment of the lender. As you can see, these details can easily put a strain on the relationship between two family members if things should go wrong.

More so, the lender can be at a big disadvantage due to the fact that he will not be able to legally get his money back, especially if the agreement has not been put in writing. It is thus a smart idea to document family loans.

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