Answer quickly: What is the cheapest way to obtain a loan? If the answer is “Borrowing from a relative,” you probably share the same opinion as most people.
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However, this may not be the most accurate answer. This issue needs to be analyzed from different points of view, or more precisely, from two points of view: that of the lender and that of the borrower.
To begin, let’s assume that you are the one asking to borrow the money. In this case, the advantages tend to outweigh the disadvantages. Unless your relative is a legitimate representative of the group of “heartless and unscrupulous capitalists,” the interest rate charged will be lower (or even nonexistent…) when compared with those of the financial market. In addition, you will be free from taxes such as IOF and any registration and credit-opening fees, among others.
Disadvantages? Well, you will probably need to give your relative a “promotion,” in other words, if he or she is your cousin, you will have to start calling them “brother” or “sister.” If it is an aunt, say, “You’re like a mother to me.” If your own father is the one lending the money, “Dad” might be a way out, although not a very creative one…
In any case, you will have to promise your relative eternal gratitude … even if this eternity lasts only as long as the debt. There is also the issue of the family relationship. If you fail to pay the debt by the agreed-upon deadline, family life may be seriously affected. Whereas if you default on a bank loan, it is generally not a major problem if your bank manager stops being your “friend.”
On the other hand, if you are the one lending the money, the situation is more delicate. First, make sure that you really are in a position to lend. Remember that it is not enough to have extra money; you must always have a reserve for unforeseen circumstances.
Second, you need to be aware that there is always the risk of default. Even if you are certain that your relative is honest and will not “stiff” you, it may be that they simply cannot pay because of poor personal financial circumstances, and not due to bad faith.
In this regard, a good tip is to give your relative a financial “checkup”. Help them analyze whether the loan is really necessary (due to an impulsive purchasing decision, for example) and provide some Financial Education guidance. You can even make the loan conditional on a promise that a financial control plan will be followed.
But there are positive aspects. You may be able to obtain an interest rate slightly higher than what you are earning on your current investment. And you will also have taken another step toward earning a place in heaven, in addition to possibly receiving a promotion in your “degree of kinship”! But do not give in to the temptation to make this your “livelihood”; otherwise, it will be necessary to analyze the legal implications of doing so (being accused of being a “loan shark”).
There are still many other points to be analyzed, but we would like to conclude by saying that an important factor in this type of transaction is to try to carry it out as impersonally as possible. For example, if your relative refuses to lend you the money, do not accuse them of being stingy. And, on the other hand, do not feel embarrassed to say no to such a request, especially if he or she has a history of impulsive purchases. Another thing you can analyze is whether your relative has reduced their standard of living to adapt to the new financial reality. Otherwise, lending money will not be much help; it will only increase the size of the “hole” into which they are sinking.
It is not easy to maintain this impartiality, because we are talking about an issue that brings a strong emotional element to the surface. But do not let money become more important than a good family relationship. After all, this is perhaps one of the few things we take with us from this life.[/bloqueador]
