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Mothers are the first port of call.....
A new survey by one of the UK’s major banks, Abbey National , has revealed that in 2007, 4.4 million people lent sums of £50 or more to friends in need. In total, an estimated £510 million was lent between friends and family last year, with the average loan being around £116. However, of that 4.4 million, 3.5 million have reported that their friendships or family relationships have suffered as a result.
The survey’s results uncovered that just under 30% of these feuds centred on loans of £100 or less.
The biggest reason to lend a friend or family member a sum of money was to offer them an informal cash advance until the arrival of pay-day. This was swiftly followed by lending cash for someone to pay off personal debts. The list continues with money being lent for car purchases, home improvements and holidays. Other reasons cited include covering medical expenses, helping to set up a business and the purchase of a present for a partner.
Abbey’s Head of Loans, Paul Morrish suggests “Those that need money for items such as cars, holidays, home improvements or even cosmetic surgery would be better off asking a bank to provide the funds, rather than risking a relationship meltdown.”
Almost 10% of those who have lent money have said that the rifts caused by this form of informal borrowing have not been resolved, with excuses ranging from “I’ll give you cash when I see you” to “I don’t have my chequebook with me.”
Mothers are first on the list to be asked to help when times are hard. 16% of informal borrowers approached their mothers first, compared to the 9% who still owe money to their fathers.
Financial advisors recommend that friends and family should get an agreement drawn up before undertaking a loan between them. This way, a date for repayment can be set and the risk of friendship breakdowns is minimised as the relationship between the two parties becomes more professional. Alternatively, a personal loan removes friends and family from the equation entirely; paying a premium for your loan seems a far smaller price to pay than watching your friendships or familial relationships fall apart.
Unsecured loans tend not to be as expensive as people first think. RBS, for example, offer loans with interest rates as low as 7.4% APR with repayment periods of up to 10 years available, while Alliance and Leicester offer an APR of 7.9% on their personal loans . An additional benefit of formal borrowing is the introduction of repayment protection schemes that offer protection in the event that repayments cannot be made as the result of illness, accident or involuntary redundancy.
There is also a common misconception that loans take an extremely long time to process. Most major lenders now have the facility to transfer funds to a borrower’s bank account within 48 hours.
Borrowing money from friends or family might seem like a good idea on the face of it but, as Abbey’s survey suggests, it can be fraught with personal problems. Turning to a bank or other financial institution for aid is not only a secure way to borrow, but it also alleviates the strain from personal relationships.
Rates are correct at the time of writing (20/04/08) and may be changed at the discretion of the lender.
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