Proceed With Caution Before Borrowing Money From Parents

Parents instinctively want to take care of their children, whether they are 13 or 35. Although a grown adult with hands out-stretched for a financial bailout from mom and dad can bring to mind some unpleasant assumptions of mismanagement, this isn’t necessarily the case. Regardless of the circumstances though, both children and parents need to follow certain guidelines to make sure the arrangement doesn’t end badly.

Children Should Always Treat Their Parents as the Lender of Last Resort

If your financial situation is getting bleaker by the day you may feel like you are running out of options. However, you should try to exhaust all your sources of financing before you put your parents under strain. If they see you have made attempts to cut back on your spending and possibly taken on a second job they will be more confident about giving you a loan as well.

Parents are Emotional Lenders, But They Should Not Be Exploited

The difficult thing about asking parents for money is also ironically what makes it easy to ask them for money. They take an emotional response to your needs so they are not too concerned with the financial details like fixing a hard deadline for repayment or even setting a fair interest rate, if you will be charged interest at all. However, they also usually do not support lending money for what they deem to be irresponsible spending. They are more likely to lend for student loans or mortgage payments than they are to lend for credit card payments. You should not hide the reason for your loan to take advantage of their vulnerabilities because this will lead to a serious default of trust.

Don’t Ask Unless Your Parents are Financially Able to Lend

Adult children understand how hard it can be to juggle multiple financial obligations and this is exactly why they should not ask for a loan from the ‘Bank of Mom and Dad’ unless they are absolutely sure they can afford to lend. Adding to the financial woes of elderly parents will only come back to haunt you in time because you may end up being the cause of an additional financial burden for your parents.

Make the Loan Terms Official

Although the arrangement is made between family members it should be made official. It doesn’t necessarily need to be done as a legal document but it pays to have the terms clearly stated and all the assumptions and expectations laid out. The involved parties should sign and date the document so the lender is put at ease about the security of the arrangement and the borrower is motivated to stick to the terms.

Make Repayment Automatic

Adult children can go one step further to put their parent’s at ease. They can have a standing order set up to start deducting small repayments when the time is right. This makes it easy on both parties because there is no awkwardness about returning the money and it is also taken out before it can be spent.

“Neither a borrower nor a lender be” may be smart advice, but when there is no where else to turn, parents and children may end up going against this timeworn axiom. As long as certain guidelines are kept in mind though everyone may be able to come out of the situation unscathed.