Some of you may have cringed just by reading the title of this article. Either you lent money to family and are still waiting to get it back or you know someone with a sour experience of lending money to family. If you asked me about borrowing or lending to family, I would probably advise against doing so. However, I’ve realized that this situation has actually been a frequent occurrence with family for various reasons.
We bought our condo a month before we moved to Canada (we’re only here for 7 months and friends are currently renting it while we’re gone). The month before we moved was spent renovating kitchen cupboards and tearing down yellow textured wallpaper from 1977. After we left, my parents graciously offered to do some finishing touches and they paid for it out of their own pocket. Purchases they made were discussed beforehand and it was mutually understood and agreed upon that we would pay them back. They kept the receipts, scanned a copy of them to us, and we transferred money online to their bank account.
In-laws visit Canada
My husband’s parents came to visit for a week and stayed with us in our apartment. We slept on an air mattress in the living room to save them a lot of money from staying in a hotel and renting a car. Instead of taking a hit from transaction fees and currency exchange rates, we offered to pay for every meal and activity on our credit card and withdrew cash for them to use when we weren’t with them to pay for things. Again, we kept all the receipts and my in-laws transferred their half of expenses to our bank account when they got back home.
Car License Renewal
This was a smaller lending situation, but still counts. We did not opt to have our mail forwarded to Canada so when our license renewal came in the mail and we weren’t able to renew it online, my mom wrote a check for the cost and mailed it in for us. Again, she sent me the cost and I transferred the money to her account the next day.
My dad gets a 25% discount on a family phone plan through his company. When my husband and I got married, it was way cheaper to add him to the existing family plan instead of starting a new account for the two of us. I simply schedule quarterly payments to my parents’ bank account before each quarter starts so we’re paying in advance. My bank charges $0.99 any time we transfer money online from one bank account to another but this minimal expense is worth it to me since I don’t have to remember to write a check and it makes one less trip to the bank for my parents to make.
Things to note:
There will be a lot of case-by-case arguments on this topic. I know some parents who loan their children money for college, house, or car payments to avoid the cost of interest, but I’d stick with my opinion of not borrowing or lending large sums of money to family or friends (however, even the word “large” is a relative term, so that’s not exactly a helpful statement!). I would definitely advise against lending or borrowing money for an unnecessary or non-urgent situation. For example, when my 20-year old cousin asked my dad to cosign on a loan for a car, my dad’s response was “Absolutely not.” Don’t put yourself in a position like this. It’s one thing to spot someone knowing you’ll be paid back next time you see them but much more is on the line when long-term or large commitments are made. If you are financially able to help a family member and the cost won’t hurt your own financial status, would you consider simply offering it as a gift? We’ve given $600 as a gift to help a sibling out when money was tight and car troubles arose because we were financially able to do so. We know this sibling would pay us back, but it was nice to relieve the pressure of feeling indebted and the potential of placing a burden on our relationship.
What are your thoughts on family borrowing or lending? Any positive/negative stories to share?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.