In some ways, borrowing money from a family member or friend is more serious than approaching a bank for the same arrangement. The bank's loan officers won't be at Thanksgiving dinner or barbecuing hot dogs on the patio next door while you're sunning yourself in the yard.
"I would hope that preserving the relationship would take precedence in any negotiation or contractual arrangement, but you will have a leg up if you approach it as a business deal and don't let emotions get into it," says Gail Cunningham, senior director of public relations at the National Foundation for Credit Counseling.
Aliza Garofalo had the gumption to approach her ex-boyfriend with a request to borrow money for a down payment on a condo. But she did so with more than an outstretched hand.
"To show him I was serious about paying him back, I made up a spreadsheet detailing how much I would pay back every month," she says.
To ensure her continued payments, she has a monthly reminder set on her computer and preprinted address labels. "No excuses!" says Garafalo.
Thomas Fox, community outreach director at Cambridge Credit Counseling, recommends that potential borrowers broach the subject in a similar fashion.
Show up with a plan, he says.
"Borrowers should be realistic about what a practical repayment plan would be and not try to borrow more than they can repay. You have to treat it the same as any kind of loan and be realistic," Fox says.
If you're considering borrowing money from someone close to you, first draw up a contract.
"Put it in writing and make it as businesslike as possible. Even get it notarized by a notary public," says Fox.
This will help protect the borrower as well as the lender. In case of a lawsuit, both parties will be held to the terms of the agreement.
To further sweeten the deal, borrowers should put something of their own on the table -- and be ready to kiss it goodbye should they default.
"Offer collateral. If a family member lends you $20,000 and all a sudden you become sick or injured and can't work, how are you going to pay back the loan?" Fox says.
If you have a close relationship and have been holding up your end of the bargain, a family member or friend may be willing to work out a deal with you if you hit a rough patch and have trouble making payments for a couple of months.
"It depends how you manage the relationship after the loan is made," says Fox. "If you say you are going to pay someone back $100 a month and then don't talk to them for eight months, they're probably going to say, 'Well, I'm going to take the car as we agreed.'"
