If you need money urgently, it may be tempting to turn to your family members for help – whether it’s your parents, brothers and sisters, cousins or uncles. After all, family always have your back. They should trust you to pay them back, even if you have a poor history with credit, right?

Think again. Borrowing money from family is seldom a good idea. Once finances and family ties get mixed up, if you are unable to repay a loan at the agreed time, it can erode trust and harm relationships.

Why lending to family can backfire

It’s natural for family members to want to help you when you need it. If you need the money to start a business, further your education or cope with an emergency, it’s even harder for a relative to say no, especially if they have some spare cash available.  

You might have the best intentions of paying back the loan when you get it, but then run into further financial troubles down the line. These could delay your repayments or make them smaller than the amount you agreed on, or you might never be able to pay back the money at all. There are very few ways a relative can force you to pay them back short of legal action, which is certainly going to cause family strife.

Even if they can’t really afford it, family loyalty might cause a relative to help you out with money. It might be money they were saving for something they will need in the future, because they believe you’ll pay them back in time. If you then fail to repay them, you put them in a difficult situation. If they desperately need the money, they may be tempted to turn to mashonisa and be forced to pay exorbitant interest rates.

Unpaid debts between relatives can sour relations not only between the debtor and the creditor, but also between other family members drawn into taking sides. It’s a situation you should avoid if possible.

If you need a loan, approach your bank instead

If you find yourself trying to borrow from family or tempted to approach mashonisa every month, the solution may be an overdraft. This facility is added to your salary account, and you pay interest only on the portion of your overdraft limit that you use. When your salary is deposited every month, your overdraft is paid off first, leaving the full facility available to you again. It’s a helpful tool to get you through seasonal or repeated cash flow problems that saves you the trouble of applying for loans all the time – or asking family members for help.

If you need to borrow more money than your overdraft will cover, a personal loan could be another option. When you apply for a personal loan, the bank will check various factors before deciding whether to approve it. Affordability and your credit score are among the most important of these factors.

Affordability is calculated according to how much you earn after tax and how much is left after you’ve paid all your other fixed monthly expenses, like rent or a home loan, utilities, food and groceries, investments and insurance. This leftover amount is your disposable income, and obviously it needs to be larger than the monthly loan payments, for the loan to be affordable. You can check what size personal loan you can afford using our repayments calculator.

Your credit score, based on your credit record, indicates how well you’ve handled credit in the past. A low credit score can lead to your loan application being rejected. You can check your credit score anytime you like, for free, using the Nedbank Money app, even if you don’t bank with us (Nedbank clients can also do so on Online Banking). A healthy credit score is a gateway to a secure financial future, so you should learn how to maintain your credit score. If you have made some poor money choices in the past and you have a bad credit score, there are some practical steps you can take to improve it.

Nedbank tailors a personal loan to your needs after having checked that you have used credit responsibly until now, and we won’t give you a loan that isn’t affordable on your income. Being a responsible borrower and paying your monthly instalments on time can improve your credit score and make it easier to get credit in the future. This behaviour could even see you win the outstanding balance on your loan.

If you do run into financial trouble that puts you in danger of missing loan payments, you may be able to restructure your loan agreement with the bank to pay smaller instalments over a longer period. That’s why it’s a good idea to contact your bank and come to an arrangement before you miss a payment, rather than have a missed payment added to your credit record. A personal loan enables you to make better money choices without burdening anyone in your family.

What if family really is the only option?

If you need money desperately and your only option is to borrow from a family member, you need to keep in mind the consequences if you fail to pay them back: damaged relationships and the potential knock-on effects of your relatives having to go into debt. So, you need to treat that loan just as you would a personal loan from the bank.

If you’re in danger of falling behind on the payments, don’t avoid them or avoid talking about the debt you owe. Rather have an honest discussion about the reasons for not paying and commit to a new payment plan. Consider paying back what you can afford in regular instalments, and perhaps add a small amount of interest as a token to regain their trust. During this lean time, avoid extravagances – a relative to whom you owe money will find it hard to believe you’re in dire straits if they see you spending lavishly.

What if a loved one really needs a loan?

Parents often find it hard to say no to a child in need, so how you treat requests for loans from children or grandchildren may depend on how much money you have spare to give them. If you can afford it, you might give them a ‘loan’ that you privately consider a gift or a donation – if they pay you back, it’s a bonus, but it won’t affect your relationship if they can’t. But you need to be careful not to do this repeatedly, as they could develop a bad financial habit of taking ‘loans’ that they never intend to pay back.

One solution, if you do want them to pay you back, is to draw up a contract with a payment plan. Make sure that you include alternative payment scenarios, should the borrower battle to pay, and have them sign this contract to show their willingness to be held accountable. If you are married, be sure to inform your spouse about the help you’re offering.

Remember that a relative who asks you for money is possibly turning to family because they’re a bad payer who can’t qualify for a personal loan from a bank. Despite their assurances, anything may happen after you’ve given them money. Uncaring as it may sound, sometimes your loved ones need to be taught the hard way about making better money choices – it’s called tough love.