Five golden rules to consider before borrowing money from family or friends


Chatting On Sofa With Coffee

Many of us will have borrowed money before, whether that’s from a lender, a family member or a friend. From a cup of coffee or a taxi ride to something a bit more expensive, you’ve likely considered borrowing money to help you make your purchase.

Our research found the most common reasons for borrowing from friends and family was to cover unexpected costs such as home or car repairs (37%), with paying for household bills being the second most frequent (23%).

One of the main reasons for borrowing from friends or family is not having to complete an application or deal with an interest rate or added fees. And given that our survey found that 19% of people don't know what APR is, not having to think about it might be a relief to many.

But although going to someone you know might seem easier, you still need to think carefully about whether you can afford to repay the loan. Of the people we surveyed, 50% of those who had borrowed from friends or family regretted doing so. We found that the main benefits for choosing to go with a financial lender rather than friends and family were to reduce awkwardness (45%) and eliminate the risk of compromising friendships (45%).

We understand why borrowing from a friend or family member can be appealing, but it’s wise to know the pros and cons before you commit. That’s why we’ve put together a list of things to consider before going down this route.



Things to consider before borrowing money from friends and family


There are many things to keep in mind before loaning money from family or friends especially if you’re borrowing a substantial amount of money. Our top five considerations are as follows:


  1. The risk — can you afford to borrow?

    You should only ever borrow what you can afford to pay back — no matter who you’re borrowing from.

    Before you borrow money, it’s important to understand your financial situation. Whether you’re borrowing from a lender or family and friends, it’s essential to create a budget to help you understand what you can afford to repay. Creating a budget will help you to monitor money coming in and going out each month.

    A better understanding of your finances will not only help you recognise what you can afford but also if you need to borrow. It’s also a good opportunity to review your financial commitments. For example, if you have lots of different loans and cards, it’s a good idea to reduce these rather than take on more.

  2. Be realistic

    It’s important to be transparent with each other from the outset. Make sure you’re realistic about how much you need to borrow. This can help you avoid asking for additional funds at a later date or borrowing more than you can afford.

    Be honest and set realistic expectations. Missing repayment deadlines can add  tension to your relationship and make it hard to reach a fair agreement for both parties. Make sure you understand any required repayments and set realistic timelines so you’re able to meet them.

  3. Understand the ‘unwritten’ — and the written — agreement

    To avoid strained relationships, both parties need to understand what they are agreeing to. This includes when the borrower will pay the money back and whether there will be any interest.

    It’s advisable to put any agreement like this into writing. This removes any ambiguity. You should treat this contract as seriously as you would with a financial institution.

    Even if you don’t have a written contract, set up a payment plan with specific deadlines. Be as detailed as possible to ensure both parties understand the agreement in place. Having a clear repayment plan from the outset will help you avoid any unnecessary disagreements later down the line.

  4. Keep records of any payments you make

    It’s critical that you put a system in place to easily track any payments you make. This will help you to manage the money borrowed more easily and avoid conflict about missed or late payments.

    Setting up a standing order may be a good idea. This can help you pay the same amount regularly and ease any unwanted awkwardness.

  5. Consider the alternatives

    Despite some benefits to borrowing from friends and family, many feel uneasy about doing so. We found that 37% of people think that loaning money from a financial lender is more official and safer. Additionally, 33% also feel that there is more clarity with fixed monthly repayments.

    Although you will be required to pay an interest rate when borrowing from a financial institution, there are also many positives. But before you explore this option further, take the time to do your research, get clued up on your credit score, and shop around. Doing these will help you find a rate that’s right for you.


Why get a loan with Shawbrook Bank

People want loans that are easy to manage.

When we asked what is most important when borrowing from a financial lender, “good interest rates” was unsurprisingly the top answer. Beyond this, respondents also valued:

  • Clear terms and conditions
  • Responsible lender
  • Good customer reviews
  • Ease and convenience

Did you know that when a loan is advertised with a representative APR, it means at least 51% of those applicants will end up getting it , and is meant to be used for comparison purposes? But,despite seeing a ‘good interest rate’, this may not be the rate you receive. Visit our Transparency page to find out more.

At Shawbrook, we pride ourselves on being fair and transparent with everyone who applies for a loan. When you apply for an instant quote with us, we’ll let you know the rate you’ll actually get. We offer guaranteed, personalised rates without impacting your credit score so you can have the flexibility to shop around and find a loan that works for you.

All loans are subject to status. Terms and conditions apply.


All stats used are from our consumer research survey of 2,000 UK adults, carried out by OnePoll in February 2022.