Borrowing from friends and family

Borrowing from friends and family

It is very common to borrow from friends and family, particularly the bank of mum and dad!
Since the withdrawal of payday lenders, Brighthouse, Provident and other lenders, options to borrow have been reduced. Lenders have also been required to tighten up compliance including affordability. For some people they may find it very difficult to access credit, or find it very expensive. For some of us, borrowing from family or friends can be an attractive option, maybe the only option. 

Things to consider

  1. Can you afford to repay?
  2. Will the loan affect your relationship?
  3. How long to repay the loan? If there is no end date, or it isn't clear this can strain your relationship
  4. Are there bigger issues than borrowing some money? Maybe you need some guidance and support - friends and family can be good at that. There are plenty of organisations and resources able to assist whatever issues you may be dealing with, try
If you are the person lending, would it be simpler to gift them the money? If they pay it back that's great, but there is no hard feelings if they don't. If you charge interest that is liable for income tax and must be declared to HMRC. 

Between you, you can agree an interest rate or a fee for the loan. BUT! If they are routinely lending then that could be considered a business and therefore should be registered and regulated. If the interest rates or fees are excessive, nothing documented, threatened with violence or other enforcement, then these can all be indicators that the loan is illegal and they could be a loan shark. We work with the England Illegal Money Lending Team (IMLT) better known as the Loan Shark Team based locally in Birmingham council, they can be contacted in confidence 24 hours a day, seven days a week at  
Telephone: 0300 555 2222

How to borrow safely from friends or family

If you do borrow from friends and family then there are some sensible arrangements to make to help the process be fair for you and your friend or family member. Here a few steps:
  1. Agree how much is being borrowed
  2. Agree when and how much is being repaid
  3. Agree a repayment schedule (weekly or monthly)
  4. Write it down. LawDepot has a free promissory note you can use. 

What credit union can do

Credit union is all about community; some people save, others borrow. The difference is that we are regulated and must comply with the requirements of the Bank of England, FCA and PRA. If borrowing or lending with friends and family isn't going to work for you then we might be able to help. There are two things we can do:
  1. Provide a loan directly to the borrower. Simple, confidential and provided that the borrower passes our lending criteria, the relationship is purely between us and the borrower. Plus it can help them build a positive credit history. What's more, all our borrowers save at least £3/week, so maybe they won't need to borrow next time there's a crisis.  It's a win-win. 
  2. Guarantor loan. We can be your middle man. If the lender deposits savings with us we can use that as a guarantee against the borrower. This means we can provide the loan in circumstances where we would not otherwise be able to lend. 


The MoneyHelper website has an article about borrowing from friends and family
StepChange have a helpful article if you are having problems with borrowing from friends or family

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