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Direct Personal Loan

One of the best sources of emergency financing for average people is a direct personal loan from a friend or relative. Instead of going to a lender person borrows the money from a friend or relative and enters into an agreement to pay it back.

The advantages to a direct personal loan are obvious: the friend or relative will often charge no interest or very low interest on loan. More importantly the repayment arrangements can be very flexible, a friend or relative might give you several months to repay the loan.

Disadvantages to Direct Personal Loans

The biggest disadvantage to direct personal loans is an obvious one: it can destroy your relationship with your friends or relatives. Every one who tries to get a direct personal loan should be careful not to hurt the lender and their relationship with the lender.

Never take out a direct personal loan unless you know the lender can afford it. Don’t put somebody else’s economic future in jeopardy by borrowing a large amount of money from them.

Another tip is to only get a direct personal loan from a person whom you have a good relationship with. Make sure the person is mature and comfortable with the loan, if they’re uncomfortable look elsewhere for money.

Remember nobody wants to get the reputation of being a leach who is always trying to borrow money. That can quickly happen to you if get take out a lot of personal loans.

Take the Sting Out of Direct Personal Loans

There are some ways that you can make the direct personal loan arrangement a better one for both the borrower and the lender.

The first and best suggestion is to create a written agreement. Write out the terms of the loan on a piece of paper and have both persons involved, sign it. Then make sure both the lender and the borrower have a copy of the agreement. Having clear and written terms will help you avoid disagreements and ensure that both parties know what is going on.

Another suggestion is to have collateral involved in the transaction. The borrower can put up something of value as collateral such as a piece of jewelry or an electronic device such as a camera. That way the lender can recoup their losses if the borrower doesn’t pay off the loan.

Limit Direct Personal Loans

Direct personal loans should always be limited to emergencies such as unemployment or medical emergencies. Do not make direct personal loans to somebody so they can cover their day to day expenses or buy luxury goods.

A person should never get dependent on direct personal loans, nor should a person be put in the ugly situation of trying to collect money from friends or relatives. The conflicts that can result from such situations are often much more destructive than any financial problem.