Should I Borrow from my Parents or the Bank?
If you need to borrow money then you will have a selection of options available to you. For some people it might be that they will be choosing between the bank and their parents. Not all of us have parents who would be able to help out with this sort of thing, but for those who do, they will need to decide which option will suit them the best.
Borrowing from parents can be easier and quicker as they will not need to do a credit check or confirm your identity so as soon as they have agreed to lend money to you should be able to get your hands on it. They may need to transfer it form an account or sell some investments but it should not take very long. They may even be able to let you have a bit to start with in order to keep you going until they are able to free up the rest.
Parents may not charge you interest or they may not charge you as much as a bank. They will obviously have an agreement with you about this. You might want to have something written down in order to make sure that you agree together on whether you pay this or not. They might hope to get the amount that they can receive on the money in a savings account which will be a lot less than you will pay to a lender for a loan. They may also be more flexible and let you miss repayments if you need to and may not charge you any extra if you do this.
There may be problems with borrowing from your parents though. If they suddenly need the money for themselves then they may come to you for it. If you cannot give it to them then you may feel guilty and they may feel resentment. It may be that you have siblings who may also want to borrow money and if there is not any money available to give them as you have it all then they may feel annoyed and jealous of you. It could cause all sorts of problems within the family.
You have no emotional attachment with a bank which can make it easier borrowing form them as there will be no jealousy or resentfulness. You will not be made to pay it back early, although you will need to stick to the agreed repayment plan or else you could end up with extra fees to pay.
The bank will probably be more expensive to borrow from. It may limit how much you can borrow as well, depending on your credit score. You might find that the interest rates go up as well and you end up paying more than you thought you were going to have to.
It can take time to arrange a loan with a bank and they will not lend to you if you have a poor credit score. They may not agree to lend you as much money as you want or it may be at a higher than advertised interest rate due to your credit rating.
How to decide
Although it might seem that there are more disadvantages with borrowing from a bank; particularly the cost it is worth weighting those advantages and disadvantages. It may not be worth falling out with your parents just to save some money on a loan. Of course, you may not be able to borrow money any other way and then you may have to decide between borrowing from your parents or not borrowing at all. Unless you went for a poor or even no credit check option. It is wise to always think about whether you really need the money that you are borrowing. You need to decide whether what you want is an emergency purchase or something that will make a big improvement in your life in the future. If it does not fit these criteria then borrowing is probably not the right decision anyway and you will be better off saving up and then buying the items once you have saved up enough. This can feel hard, but if you save up each month, the amount of money that you would otherwise have used to repay the loan, then you should be able to do it. If you do decide to borrow then make sure that you have repayment terms, whether that is with your parents or the bank that you can manage. It is so important to make sure that you are able to pay all of your bills and cover your costs on top of the loan repayments. If you cannot do this then you need to look at whether you can cut down your spending anywhere or find some ways to earn more money so that you can manage them.