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Have you borrowed from the bank of mum and dad?
When in need of emergency money, borrowing from your parents, or even grandparents, can seem like a convenient way of getting your hands on extra cash. However, it’s important to think about whether you’ll be able to repay back what you owe, as well as the consequences of what could happen if you can’t.
New research* conducted on our behalf has found that 10% of over 55 year olds have lent £500 or more to family members in the past year. Of those, 42% say that they are happy to be repaid whenever the borrower can afford to.
Seeking the help of a loved one
When done in the right way, borrowing money from a parent or family member can give you access to emergency funds without having to pay high interest rates. But be aware, your relationship with your loved one could turn sour if things don’t go to plan.
So, to try and avoid any mishaps, it’s important that you outline the circumstances of your borrowing from the start:
Step 1: Before any money exchanges hands, you should go through your finances and work out a budget for yourself, this should include any bills or other expenses. You should then use this budget, to work out how much you’ll need to borrow and how quickly you’ll be able to repay this back.
Step 2: Once you have done step 1, you should discuss how much you intend to borrow with parent or family member. Through this discussion, you should both come to an agreement over whether you’ll pay the money back in instalments, in one lump sum or sporadically. Your parents may not expect to be paid back at all, but you wouldn’t want them to be out of pocket, particularly if it’s a hefty amount, so it could be a good idea to try to pay them something in exchange for their generosity. They may also be more willing to lend to you in the future if you pay them a portion or all of what you owe.
Step 3: If you pay back what you’ve borrowed in instalments, make sure to keep track of how much you repay and when. Jot this down in a notebook or spreadsheet and encourage your parent or family member to do the same. You could even set up a direct debit to make life a little easier for yourself.
Remember, mixing business with pleasure so to speak, can be tricky, especially when it comes to parent – child relationships. Most parents are unlikely to want to sit back and not act when their child is in financial difficulty, but don’t cry wolf. Only ask for financial help when you actually need it, otherwise you might find the bank of mum and dad is closed when you actually need help – meeting the rent or paying for an essential car repair.
Alternatively, if a family member comes to you and asks for money, think long and hard about whether you can realistically afford to help them out. It can be hard to refuse a family member in need, but there’s no point getting yourself into financial difficulty just to do them a favour. So be honest with them and if you can’t afford it, let them know that you aren’t able to help them out at that moment.
*OnePoll questioned a nationally representative sample of 2,000 adults aged 18 and over between 11th February and 23rd February 2015, of whom 635 were in Scotland.