Loans to family - what's the catch?
When someone's looking for a loan, friends and family can often be the first port of call. No credit checks, no application forms, no interest (in most cases). It's easy to see why so many people turn to someone they know, rather than approach an official lender.
And it's easy to see why their 'informal' lenders lend to them. It's only natural to want to help the people we care about.
However, a loan like this doesn't always work out as planned.
Aviva's latest Family Finances Report (Autumn 2011) sheds light on the subject, providing some interesting figures about loans and gifts to friends and family.
First of all, it indicates that fully 31% of families provide financial support to their friends as well as their extended family. They give gifts as well as loans to their siblings and close friends, along with their adult children and 'ageing' parents. On average, they pay out £442 per year - 2% of the typical family's income in a year.
So who's benefiting from this financial help?
- Mothers - 10%
- Fathers - 7%
- Grown-up children living away from home - 7%
- Sisters - 5%
- Close friends - 3%
Problems can arise, however, when people loan each other money and that money isn't repaid as agreed. And even if it is, the act of lending it out means they have to live without it for a while, which can place a strain on their own financial situation.
Helping out family and friends financially is seen as a 'barrier' to:
- Saving - 46%
- Repaying debts - 24%
- Putting aside money for their children - 14%
- Paying into a pension - 11%
In fact, 15% of families who help out like this say they've cut back on their own spending to make sure they can keep on supporting their family and friends.
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Tags: loan, loans, Aviva, savings, spending, Family Finances Report