How to successfully ask family members for a loan

Family lending

It's hard not to alienate people we love when money enters the conversation. This is especially true when it comes to borrowing or lending cash. When you decide it's appropriate to ask a family member for money, how do you go about it?

Economist Diane Lim has some personal as well as professional experience with the subject, and says sometimes the decision to ask a relative for a loan isn't something that seems like the best option -- it's something that seems like the only option.

"It felt like that at the time for me," says Lim about asking her own parents for financial help. "I'm not talking about ancient history either. I've recently been divorced a few years ago, and it's expensive to go through a divorce when you have several children... it's the most financial burdensome thing I ever had to go through."

So how do you ask for help?

"Hopefully you have a close relationship with your family member to begin with," Lim says, "such that your family member can kind of figure it out when you might need some help and maybe they're even the ones that bring up the topic first."

Lim says working out how a loan can be a win-win situation is a good way to broach the topic as well -- because "banking within the family" can benefit the lender while still saving the borrower from higher interest rates.

"What if we could work out an arrangement where I borrow a certain amount of money from you and I figure out what kind of interest I'm willing to pay," says Lim. "That way I can pay you a higher [rate] than you can earn in the rest of your savings... and I can pay a much lower interest rate than I'd pay if I went to a bank."

Failing to set up specific terms before you go to family member for a loan could be a recipe for bitterness and resentment down the road, Lim warns.


 

 

 


 

 

 

 


Lim also offered advice to callers asking about their own family money problems:

Catherine in Tallahassee, Fla., has a uniform gift to minors account that she must turn over to her daughter who's graduated from college. She's concerned, though, that her daughter will spend the sizable sum frivolously -- something she did herself after getting a windfall of cash in her youth. Catherine wants to know how to tell her daughter.

Sam from Pasadena, Calif., has a father who was laid off just before securing his pension and doesn't feel good about both his parents' financial security.   Sam asks how he can reconcile the difference to make sure his parents can live happily.

Click play on the audio player above to listen to the advice.

About the author

In more than 20 years in public radio, Barbara Bogaev has served as the longtime guest host of NPR’s flagship program Fresh Air with Terry Gross, as well as host of APM’s news and culture magazine, Weekend America and the weekly national documentary series, Soundprint.

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