Neither a borrower nor a lender be; / For loan oft loses both itself and friend.
Polonius, King Claudius’s Chief Counsellor in Shakespeare’s Hamlet
When you are in a financial crisis and your back is against the wall, borrowing from a loved one may seem like an easier and more cost-effective option compared to private lenders or a bank. However, taking a loan from friends and family leads to several unexpected issues that can complicate relationships. This is exactly what Polonius advises in Shakespeare’s famous play, Hamlet.
You may be lucky to have ride-or-die family and friends who are willing to support you when you need quick cash. But accepting money from them is usually a terrible idea. Read on to know why.
1. Money Weakens Relationships
Mixing finances with relationships can distance you from those you love. Most of us have a tough time setting boundaries with our near and dear ones. So, when a loved one offers a loan, the terms of repayment are seldom discussed. Over a period of time, this breeds resentment in the relationship.
For instance, loans taken from family and friends are rarely documented. These decisions happen over a coffee or during a get-together. This leads to confusion, arguments, and disputes in the future, adversely affecting the relationship.
2. The Process Lacks Documentation
People are always eager to help their loved ones in need. However, in such casual transactions, both borrowers and lenders miss out on following the loan-processing steps traditionally followed by licensed moneylenders or financial institutions.
Since loans and gifts have separate tax implications, insufficient documentation can lead to tax scrutiny by the IRAS. Ideally, both the involved parties should include a signed promissory note, a detailed repayment schedule, and any other documents that meet the IRAS requirements governing private lending. However, in their eagerness to get a loan or help their loved one, both the parties miss this step, leading to several tax implications in the future.
Lastly, failing to document the terms and conditions leads to a lack of clarity which can be disastrous if the borrower and the lender have different expectations. For instance, if you borrow money from a friend to fund your startup, they may assume that their financial support gives them a voice in your daily business operations. On the other hand, you may feel it’s okay to miss an occasional payment as the lender is your close friend. This can lead to disappointment and disagreements down the line.
3. It Leads to Social Awkwardness
Accepting loans from loved ones can complicate your daily life, making you feel judged for your spending habits or social interactions. For instance, a family member may taunt, criticize, or discourage you from taking a break, going out for dinner, or even buying a new pair of shoes when you are yet to repay the loan. Even your grocery bill will be under scrutiny. Such situations open up unwanted dialogues about the debt, making it awkward for everyone.
Moreover, if the debt gets mentioned carelessly in a random conversation years later, it may cause you much embarrassment, even if you have paid it off. At times, the lender may be your close friend or relative; yet, they may never let you forget that they helped you in need, putting you in an excruciatingly awkward position.
Licensed moneylenders, on the other hand, have nothing to do with the debtors’ lifestyle or personal life. As long as borrowers stick to the repayment schedule, they have complete control over their spending habits, making them feel empowered and treated justly.
4. You May Lose Trust and Dignity
When you borrow from a family member or friend, the loan comes with zero interest and no deadlines. Due to this, you may take your time repaying the loan. However, this can cause your friends or family to lose trust in you, forcing them to think that you are taking undue advantage of the relationship. Thus, you lose mutual trust and dignity, thereby ruining your relationship.
5. You Have Better Options
The easy availability of institutional loans and the government’s efforts to regulate the moneylending market in Singapore, has made it easy for people to get personal loans. So, even if you have family and friends who are happy to help you through your financial crunch, consider the aforementioned fallout scenarios and opt for a private lender.
Here are the obvious benefits of getting a loan from licensed moneylenders in Singapore.
The Loan Application Process Is Strictly Professional
Licensed moneylenders have certain responsibilities towards the borrowers and will do everything to protect their personal information. Thus, in case you default on your loan, you don’t have to worry about a moneylender interfering with your daily routine (like your family or friends) or threatening or shaming you in public (like the ah longs). Instead, you can consult the lender and negotiate the terms of repayment.
Interest Rates Governed by the Registrar of Moneylenders
Since licensed private moneylenders in Singapore are strictly regulated by the government, they adhere to the code of conduct laid down by the Ministry Of Law. They are restricted by the amount they can lend and the fees and interest they can charge. Hence, licensed lenders are transparent about the interest rates, charges, fees, eligibility requirements, and other terms and conditions.
Even People with Poor Credit Rating Qualify for Personal Loan
Licensed moneylenders assess the borrower’s income and total debt servicing ratio before granting a loan. Yet, they do not have stringent requirements like most traditional institutions that reject loan applications from people with a poor credit rating.
Licensed lenders are less rigid and offer a separate loan package for people having a bad credit score. In fact, they can help you consolidate and repay all the debts, thereby improving your credit rating.
Though borrowing from a loved one comes with zero interest rates and flexible repayment options, it has strings attached. The burden of debt can put a huge strain on your relationship, bringing in feelings of guilt, resentment, and a loss of trust.
Without a doubt, your family and friends have your back in tough situations. But it’s not worth losing a precious relationship over money matters. So, the next time you need money, avoid approaching your loved ones. Instead, look for an authorized moneylender who can help you meet your financial needs.