If you have family members or friends who have money and are willing to lend it to you, this is a great debt consolidation option.
This is a good option if you have bad credit and banks and independent lenders are unwilling to lend to you since family and friends will not consider your credit score.
However, there is a risk of even your closest relatives and friends refusing to lend you money. You should not take offense because they understand the dangers of lending to family and friends. In case you are unable to repay for one reason or the other, they are only left with 2 options:
Relatives who refuse to lend you money may be doing so to prevent jeopardizing the relationship. They may feel they are unable to forgive the debt should you be unable to repay.
“Neither a borrower nor a lender be; / For loan oft loses both itself and friend,” said William Shakespeare in Hamlet, circa 1603 Act-I, Scene-III. On this famous phrase, the character Polonius is counseling his son Laertes before he goes to Paris that he should not lend or borrow from friends because he will lose both the friend and the money.
Come up with a proposal when borrowing money and treat the loan as you would a bank loan if you care about your relationship. The agreement should be in writing and it should include:
You should accept questions from the lender. This shows the lender you appreciate the risk they are taking. Let the lender go through your budget and to even make proposals. Make the lender comfortable that you are able to pay back the loan.Your friends and family will know how you are spending the money.
They are likely to take offense if they see you spending it for such things as making expensive purchases, eating at expensive restaurants, and going on exotic holidays.Use any extra money you come across (such as a tax return) to repay the loan. This good-faith gesture will establish credibility.
Communication is key, even when you are unable to honour your repayment obligations.
Explain how lending you money will benefit the lender. As an example, if you have been borrowing money regularly to make ends meet, you could tell the lender than your financial freedom means you will no longer borrow regularly.
Your lender will be wondering why you are unable to get money from a bank or an independent lender. Be honest and explain the reason why (such as a bad credit score). They will appreciate the honesty.