Most of us get into financial difficulty at some point in our lives. You might choose to go to a bank to borrow money, or you might decide to borrow from family members instead. The only drawback is borrowing money from family members could lead to strained relationships and even physical altercations. A recent Lending Tree survey found 35% of Americans loan money to family members, but some of those lending arrangements end in disaster.
Here’s how often loaning money to family leads to fistfights.
Who borrows and who loans money
Lending Tree found 70% of Americans borrowed money from a family member at some point. Approximately 35% have loaned money to a family member. Roughly 24% of respondents said they have both borrowed from and loaned money to a family member. Although lending and borrowing is common among family, there is often bad blood when things don’t go as planned.
How much is too much?
You might want to assist a family member in need, but at what point does the loan amount become burdensome? According to the survey, respondents said requests to borrow or loan money that were $500 or more were a bit much. However, for about 1 in 10 Americans, borrowing or lending a significant amount of money meant shelling out $5,000 to $10,000, and more than 6% said a substantive loan would be one that was more than $10,000.
What happens when things get ugly
In a perfect world, you could freely loan or give money to family without any problems. However, this isn’t a perfect world, and things rarely go without a hitch when family and finances are involved. Approximately 10% reported they got into a verbal argument with a family member over money. Roughly 11% said there was a reduced frequency of contact because of money squabbles. Furthermore, 5% said a sticky money situation led to irreparable harm to their family relationships. Among the respondents, 0.8% resorted to suing a family member, and 0.9% got into a physical altercation over money.
Will you get your money back?
The toughest part about financially assisting family is you can’t always count on getting your cash back. The Lending Tree study showed most of the time, you won’t get all your money back. The results showed millennials borrowed the least ($7,531) but were least likely to make a repayment. Members of Generation X, on the other hand, borrowed the most ($23,034) but were also most likely to repay their debt.
When it comes to asking for a loan, which generation is most likely to offer help? Lending Tree discovered baby boomers were the most generous with their money, even though most only got about half of the loan back. On average, baby boomers gave $8,563 to relatives, compared to $6,327 loaned by Generation X and $3,538 loaned by millennials.
Although you want to do the right thing and help a family member, chances are you’ll live to regret it. Some survey respondents said they did feel appreciated for going out of their way to lend money to a relative in need. However, almost 1 out of 4 people polled for the survey who loaned money to family said they regretted doing it and would never loan or give money to family again.
Deciding whether to lend
Should you lend money to family members? That answer will depend on the situation, but experts generally recommend keeping your wallet in your pocket. As you can see from the examples above, the outcome can be messy. One of the first questions you need to ask yourself is whether you can really afford to help. If giving away money or making a loan would put significant strain on your finances, you have your answer.
The best way to lend money
If you decide you can afford to lend, it’s in your best interest to draft a written agreement stating the loan terms. Include the total loan amount, how and when the loan should be repaid, and how much interest will be charged (if you decide to charge interest). It’s also a good idea to have the agreement signed and notarized, so you can officially document the loan.
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