How to Loan Money to a Family Member

Lending money to a family member is the most difficult thing for many people as the fear of not getting back their money surrounds their mind. Not to mention, it is hard for many to deny lending money to their relatives and it is of utmost importance for them to secure their investment.

On the other hand, one should not forget the advantages of borrowing money from a family member. Taking loan from a family member is comparatively too convenient as they don’t charge high mark ups for lending money. It also requires much less documentation and legal obligations to be fulfilled and ultimately allows the individual to enjoy loan money with much less pressure.

On the contrary, banks usually follow a strict mark-up rate directed by federal bank whereas the family members have no or little interest in that. On top of that, it is much easier to convince a family member for a loan than convincing a bank. However, it is advised to work within the framework of lending money provided by federal bank to keep problems at minimum.


  • 1

    Determine the need for loan:

    It is of pivotal importance that one should assess the family member’s need for loan. They should take into vigorous consideration why they need the loan or whether they will be able to return it or not?

  • 2

    Adhere to the instructions:

    You family members usually don’t desire massive mark ups like the banks or other lending institutions but it is usually in good interest of both of them to follow the set pattern for lending money as these has been followed by institutions for a long time and has proved reasonably good.

  • 3

    Set terms of repayment:

    The banks and other institutions follow a set pattern for the repayment and instalment of loan while taking loan from a family member provides the borrower with a considerable flexibility in this regard. Nonetheless, it is of utmost importance that the mode and terms of repayment should not be ignored and needs to be decided in the beginning.

  • 4

    Documenting the loan

    It is of considerable importance that the amount of loan be documented by both the borrower and the lender to avoid any dispute in future. For this, one needs to go and check online the available templates for forming the document and ensure the proper recording. This can also be achieved by involving a lawyer in the process.

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