When you’re in a money jam, sometimes the most logical solution is to ask a family member to help you out. 🫴💵 With interest rates still higher than your hippie cousin, borrowing cash from a loved one can make a whole lot of sense. 💡
However, lending money to family members doesn’t always end well. Let’s break down some facts and see if it’s worth it. 👇
Here’s Five Fast Facts on lending cash to family:
- 👎 Turned Down for What - Today’s economy has banks running a much tighter ship than in the past. Rejected credit card applications jumped from 32.1% in October to 35.3% in February. Since the Fed started raising interest rates back in 2022, half of Americans who applied for a loan or other financial product were declined.
- 🪁 High as a Kite - According to the Fed, the average rate on a two-year personal loan was 12.49% in February. With numbers like that, borrowing from friends or family is a heck of a lot cheaper. Per IRS guidelines, the minimum interest rate requirement on a $10,000 or larger loan from a relative is just 4.97%.
- 🔥 Burning Bridges - Even though borrowing cash from loved ones is the better deal, many people shy away from it because of the potential fallout. In a recent survey, about a third of Americans said things went south in a relationship over money not being paid back.
- ✅ One Track Mind - On the bright side, new apps and platforms may help make the process smoother. These services handle everything from tracking payments and terms to keeping tax records. Way more official than signing your name on the back of Uncle John’s napkin at the family BBQ.
- 🤳 So App-ealing - If you’re lending out a large sum of money, check out Namma. The app creates loan contracts and can provide payment reminders and keep track of transactions for a small monthly fee. Lending out a smaller loan? Try Zirtue. The average loan on that app is about $400 bucks and most are repaid within six months. Zirtue charges a small transaction fee paid by the lender up front, but is then repaid by the borrower on agreed-upon payment terms.
🔥Bottom line: Always think long and hard when lending money to family and friends, even if you’re 99.99% sure they’ll pay you back. To save yourself any potential heartache and empty pockets, lend only what you can afford to lose. Speaking of borrowing, the Zoomers are in debt…big time. Read more about that here!
Have you ever loaned money to a family member?
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