family loans are inevitable, in order words, you have to be aware of certain factors. it is mandated that before any loan between family members, Be sure to know what you’re getting into before you agree to the family loan. Read the article below to know more about borrowing and lending from family
Family loans should be treaded on carefully because they cannot be avoided. Therefore, is necessary that there is clear communication and a written agreement to detail the loan terms
What are the advantages of a family loan?
some benefits of family loans include:
- Cheaper loan rates, if any at all
- It helps you avoid risky loan options
- Easier approval due to lack of formal processes
- Flexible repayment, especially in times of hardship
What are the disadvantages of a family loan?
Family loans also come with some disadvantages like:
- There is a high potential for conflict
- Absence of credit building
- Possible tax implications depending on the local laws in your geographic location
How do I apply for a personal loan for a family member?
Writing down the family loan applications and agreements is one of the best ways to avoid issues when it’s time for repayment. Basically, you can draw up a contract that spells out the terms and conditions of the loan which both parties are to sign. In this way, there is always a reference in case of misunderstandings and arguments.
Some of the basic family loan terms to include in the agreement are:
- Loan’s interest rate
- The total amount borrowed and what it would be used for
- Repayment terms of the loan including payment amount, frequency, and tenor of completion
- What happens if the borrower defaults or completely stops paying temporarily or permanently due to an emergency
- Whether the loan can be repaid early without any penalties and the amount of interest that would be saved on early payment.
What are the alternatives to family loans?
In a situation where you cant get a loan from family, here are some alternatives:
- Personal loans
You can always get a personal loan from credit unions, or online lenders. The beneficial aspect is the fact that personal loans have no restrictions on how to use them. Also, they can be repaid in monthly installments for years.
- Co-sign loans
This is a type of loan that allows the borrower to add a family member as a co-signer of the loan during the application. This way, it increases your chances of the loan being accepted and puts less pressure on your family member since they are not providing the cash. However, you have to be careful because it could affect both your credit score and damage your relationship. As a cosigner, you will have to repay the loan if the borrower can’t.
- Small business loans
Small business loans are suitable for those looking for family loans to start or grow a business. Basically, Small business loans provide higher loan amounts, and repaying on time would help you build a good credit record. Most times, they offer amounts that you cannot get from a family member.
It is very important to also have a written agreement as a guide or refer to alternative loans.
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