A financial crisis can harm anyone, and there is only one way to get out of such a situation, i.e., getting enough funds. People with an emergency fund quickly eliminate such financial troubles and get back on track without getting financial and mental stress.
However, the issue occurs when you don’t have adequate funds for the crisis. Most people prefer reaching their relatives and friends to borrow cash for a short tenure. However, financial experts highly recommend taking a loan over borrowing money from your relatives.
It looks weird, but below-given points will help you find the difference.
Complete Loan Details: When borrowing money from your relatives or friends, the biggest challenge is verbal commitments. There is nothing on paper that often creates last-moment conflicts. In numerous cases, the lack of complete loan details ends in a court case that takes longer to resolve. Furthermore, legal conflicts waste your time and manpower, which is again a bad option. However, getting a loan comes with easy approval and disbursal process. Above all, the loan document includes every single piece of information that the borrower must know.
No Compromise with Self-Respect: Self-respect matters, which is why most people never compromise. However, in the hour of need, they compromise with their self-respect and request their relatives for quick cash. Unfortunately, they live the rest of their life in guilt, which is never a good survival option. Instead, getting a loan makes it feasible to keep your self-respect as-is and get the required loan amount. In terms of a loan, you can get the money you need without hassles.
Easy Repayment via EMI: When borrowing money from friends, your friend or relative might ask for a big cash higher than your potential. This situation puts an additional burden on your monthly budget, creating another stress. Failing to repay the required amount to your relative will fracture your relationship, creating family issues. However, a loan comes with a fixed EMI that is easy to manage.
No Problem with Interest Rate: Every term and condition is clearly communicated in written format when you borrow a loan from the banks/lenders. This maintains transparency. Above all, you can negotiate an interest rate based on your credit score and financial history. However, getting a loan from relatives never considers your credit score or repayment potential. They always prefer a market standard interest rate that is often higher than what you get from the banks.
Trouble in Personal Relationships: There are scenarios when your relationship is compromised due to borrowed money. Below are a few scenarios that might end up your relationship.
- Your relative faces a financial crisis and asks for complete loan repayment.
- You fail to pay the monthly installment on time, creating personal disputes.
- Your personal life is compromised as the news of financial crises spreads in your family.
All these issues are strong reasons to consider a loan from a bank instead of a relative.