An old acquaintance once reached out through Instagram asking to borrow ₹4,000. She had an urgent payment to make. It wasn’t a huge amount, and she was grateful, saying I had saved the day. She promised to return the money the very next day. We exchanged bank details, and that was that. Except, the money never came back. Days passed. When I eventually asked when I could expect the repayment, there was no response. And now it wasn’t even about the ₹4,000 anymore. It was the silence that followed and the awkwardness of having to ask someone to return money they had willingly borrowed.
I’ve also heard stories of people borrowing from several friends, never paying back, and eventually avoiding calls and social gatherings because they can no longer face the people they owe money to.
How many times have we found ourselves in situations like these, or heard people around us share similar stories? Someone waiting to be repaid, someone feeling hesitant to ask for their own money back, or a friendship slowly becoming strained over an unpaid debt. These stories are everywhere, and most of us have seen them play out in one form or another.
When money is tight, the nearest source often feels like the easiest one. A friend, uncle or sibling can say yes, with no paperwork and no credit check. But this convenience comes with its own risks. A bank loan may feel less personal, and that is sometimes exactly what makes it a better option.
A bank gives you a written agreement with a defined interest rate, a repayment schedule and clear consequences for missing a payment. Borrowing within a family often runs on assumptions. One person thinks repayment can wait; the other expects the money back within a stipulated time. Nobody wrote it down, so each side remembers the arrangement differently.
Then there is the cost of defaulting. Missing a bank loan repayment can affect your credit score and lead to penalties or collection action. These consequences aren’t pleasant, but they remain within the financial system. When you owe someone close to you, the consequences can follow you into everyday life. You may sit across from that person at a festival or family wedding, with the unpaid money hanging between you. A strained credit history can improve over time. A strained relationship can take much longer to repair.
There is also a longer-term benefit to borrowing formally. Every on-time repayment helps build your credit history, which can make accessing credit in the future easier. A family loan, however generously given, does not build that record.
And we must consider the lender’s side, too. We often forget that the person lending us money has financial commitments of their own. A bank is set up to manage lending risks. An ordinary household or individual isn’t.
Of course, borrowing from family is not always wrong. Sometimes, it is the only option available. If you do borrow from someone close to you, agree on the amount and repayment timeline, put the arrangement in writing, discuss interest if any, and communicate honestly if circumstances change. Above all, honour the commitment.
But when a suitable, affordable bank loan is available, consider it seriously.
Paweü Kayina
Founder Moneybar | Building NE India’s Finance Community
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