2. “Navigating Loans from Loved Ones: Tips and Considerations”

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Consider Your Relationship

When facing a financial setback, borrowing from family or friends can be a lifeline. However, it’s crucial to consider your relationship with the potential lender. Avoid asking those on a fixed income, like retired parents or grandparents, or anyone you’ve previously borrowed from if it caused tension. If the person has extra cash and is willing to help, borrowing from them could prevent a financial emergency.

Create a Loan Agreement

To protect both parties, create a simple loan agreement. This document should include:

• The amount borrowed: The total sum you’ll repay.
• Interest charges: If applicable, specify the interest rate.
• Repayment schedule: Outline when and how you’ll make payments.
• Usage of funds: Clarify how the money will be used.
• Default terms: Define what happens if you miss payments.

Repay the Loan as Promised

Adhering to the repayment terms is essential. Add the loan payment to your budget to avoid missed payments. Depending on your agreement, you might:

• Set up automatic monthly transfers.
• Use payment apps like Venmo or PayPal.
• Write checks or pay in cash.

If you can’t make a payment, communicate with the lender to possibly revise the agreement and protect your relationship.

Pros and Cons of Borrowing Money From Friends and Family

Pros

• Low or no interest rates.
• No credit check required.
• Quick access to funds.

Cons

• Potential strain on the relationship.
• Payments won’t improve your credit score.
• Financing isn’t guaranteed.

Do I Have to Pay Taxes on Money Borrowed From a Friend or Family Member?

Personal loans typically aren’t taxable, but the lender might face gift taxes if they don’t charge interest or if you fail to repay the loan. In 2024, donors can give up to $18,000 without paying a gift tax.

Alternatives to Borrowing From Family and Friends

Consider these options to avoid borrowing from loved ones:

• Personal loans from traditional lenders.
• Intro 0% APR credit cards.
• Home equity loans or lines of credit.
• 401(k) loans.

Building an emergency fund with three to six months’ worth of expenses can provide financial security and reduce the need to borrow from family or friends.

The Bottom Line

Borrowing from friends or family can be a viable option if handled correctly. Drafting a loan agreement and making timely payments can help maintain the relationship. For additional funding, a strong credit score can secure better rates and terms.

For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with ease and confidence.

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