The Risky Business Of Borrowing From Family - CBS News 8 - San Diego, CA News Station - KFMB Channel 8

The Risky Business Of Borrowing From Family

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The credit squeeze is causing many people to put the pressure on family, hitting loved ones up for loans. But there are some things you should know before you dip into your own pocket, or you do the asking. \r\n\r\nCash - it's a tough, often times awkward thing to ask for, especially when you're soliciting money from a family member. \r\n\r\n"You've got to get away from the emotional side, the family side and look at it as a business transaction because you could regret it for years to come," News 8 Financial Advisor Brent Wilsey said.\r\n\r\nWilsey says family-backed financial bailouts are becoming more and more common in these tough economic times, but he has some tips for those on both sides of this difficult and uncomfortable situation.\r\n \r\nIf you're the one strapped for cash, ask the person in private. Give them an out to say no, explain why you need to borrow the money, and specify the exact amount you need.\r\n\r\n"Really understand why they need it, kind of look at it like a bank would, kind of look at their past credit history," Wilsey said.\r\n\r\n"Do you ever remember a time when they paid money back, or did something admirable to get money back, or were they the type to kind of skid out of things," he said.\r\n\r\nIf you're the lender, don't just take their word for it. Put the request in writing, or a promissory note. Lay out the terms of the contract, including the name of the person borrowing and lending, the amount being borrowed, the terms of the loan and the interest rate, in addition to the schedule and the amount of each payment.\r\n\r\n"If you put it in writing, the person borrowing the money has a better feeling of paying the money back," Wilsey said.\r\n\r\nAnd if you're uneasy with the idea of being the family ATM, Wilsey says you can still offer alternatives without creating a volatile situation by mixing business with family relationships.\r\n\r\n"You're going to see that person all the time. Gosh, they never paid me back, and you'll probably never forget about it," Wilsey said.\r\n\r\nIf your family member says no, you still have some other options. That person could co-sign on a loan with you at a bank, but they would still be on the hook if you miss a payment. Or you can look into peer-to-peer lending sites online. \r\n\r\nAnother option for cash-strapped family members is to refer them to your own financial advisor. Financial planners can typically find ways to help cut your monthly, fixed expenses, so you don't have to take out a large loan.\r\n\r\n\r\n
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