In the event that you have decided to go for higher education that you have always wanted and need borrowed funds, apparently the most viable option that one may think of is to borrow money from a family member or a relative. Often times, almost everyone have a cool uncle or godfather who will not blink an eye to provide loans to their favorite nephew for the purpose of higher education. This is the most hassle free way to get a lump sum amount as compared to going through the hustle and bustles of study loan formalities via working through a bank. Although going this route can be a great financial choice as you could get an interest-free long term loan, this may not be always the right choice when you take into account the social aspects.
When you are borrowing from your family you are putting a lot of things at stake. These are:
- Family reputation
- Your personal relationship with the relative or family member
- Your credit report
- Burden of quick repayment
The reputation of your family will be at stake
While taking money from your family members for education purpose, you are taking a huge risk of putting your name to disgrace in case you fail to repay the borrowed amount within the time frame. Possibly no one will directly say anything; however Chinese whispers would be going on around the family that you have defaulted in returning the borrowed money. And the weird thing about borrowing from friends and relatives is that people often become complacent in repaying them. Maybe it has to do with human nature.
Whereas if you take a study loan from a bank or any other financial institution, and you fail to repay within the time frame, the maximum that will happen is that they will levy some penalty on your overall payable amount, but they will never the tarnish the image you and your folks in front of other family members. And this thought of having to pay late fees and being unable to get annual fee waived is often motivation enough for an individual to take action to make timely repayments.
Relationships take complicated turns
When you are taking a study loan, you are getting in to a complete professional relationship with a lending body where there is no place of emotions or sentiments. You take the disbursed funds and use it for your particular purposes, then make monthly payments until the principle is fully repaid. Nothing can be more straight forward than that. On the other hand, when you are taking money from your relatives, you are putting a huge question mark on your relationship with that individual as he may always think that he has done some favor by lending you such a high amount of money.
in future, an obligation to return the favor can be put on your shoulders. This is what family and social dynamics can induce. When your relative have indeed run into financial trouble, he might use emotional blackmail by bring up the past in an attempt to get financial help from you. This is even when you have paid interest to him for the borrowed study loan in the past, and rightfully speaking, does not owe him anything. But because of family dynamics, the “favor” have been registered and you are expected to reciprocate. On the other hand, on a moral n basis, if you had taken an interest free loan, you do owe the lending party a favor at some level.
Who knows. One day, that relative might even go to the extent of approaching your spouse or parents to cash in on the favor. Are you ready to manage such tricky situations that can potentially destroy your relationships?
No impact on credit report
It becomes a cake walk for you to avail a loan if you have a clean credit report of repaying previous loans on time. This however would not be possible if you borrow money from your relatives as even if you pay the money back on time, there is no way that the banks would come to know about it as it is going to be limited within the family only. So your credit report will have no boost even you clear off the debt on time.
If you are a teenager or a young adult, you may not yet realize how important a role a good credit score can make on your lifestyle. Implications of bad credit can mean failing to qualify for credit cards or even a mortgage you need to buy a house. A good credit record will not only mean that you can get easier access to banking and credit facilities, but also mean that you have a higher chance of qualifying for better terms and interest rates on your borrowings.
To build up good credit instead of a satisfactory one, you need to have credit facilities in your own name while making timely repayments. By taking up an educational loan from a proper financial institution, you will be able to register your good credit behavior with the relevant agencies. The drawback is that bad behavior will also be registered. So if you are someone who have a bad habit of not repaying what you borrow, maybe your best move is indeed to borrow from a relative. However in this instance, taking up a proper educational loan gives you the opportunity to rectify your undesirable money management habits and become more financially responsible.
Pay it back quickly, or what will the relatives say!
As borrowing money from within the family puts the individual on a back seat in terms of financial status within the family, anybody would want to get rid of that tag. You could be the subject of gossip on extended family gatherings and put up a poker face while your ego takes a harsh pounding. Hence you will be under the pressure to return the money as quickly as possible. This however would not be the case if you avail a study loan. You will get enough time to repay the money and you will have fixed installment amounts so that you can plan your monthly budget accordingly.