It’s never easy to ask for money from family or friends, no matter what the amount. Taking the time to plan how you’re going to do it can make all the difference. Read our quick guide on how to ask for money so you can be sure it’s the right choice for you.
The bank of mum and dad is growing
Over the past 12 months, on average 10% of our retirement interest only mortgages were taken out with the main purpose of family gifting. The Institute of Fiscal Studies said parents would provide £17bn in gifts and informal loans during 2023. It’s also been reported that the ‘bank of mum and dad’ is now the ninth biggest mortgage lender, with 84% of parents helping their children either as a gift or a loan. At Hodge, we’ve seen on average, ten percent of our retirement interest only mortgages being taken out with the main purpose of family gifting.
So, if you’re in a position where you feel like you need to ask for money, remember you’re not alone. From one off help with a big expense coming up, like a wedding or a deposit for a house, getting a little help from a loved one could make all the difference.And as uncomfortable as the thought is,asking family for moneymight be theright choice for you.
The good news is, askingfamilyfor help doesn’t have to be an awkward affair.In fact, a 2021study we carried out revealed58% of over 75s actually enjoy helping out financially.Keep reading to find outhow to ask for money from family in a way that puts a clear case forwardand leaves both parties feeling comfortable.
But first,what if you don’treally need theextra help?
Is borrowing money from familynecessary?
You’re probably thinkingyour budget doesn’t stretch any further. But beforeyou ask for money from a family member, whether a loanor a money gift, check your spending habitsand look forcostsyou can cut back on. If you’re not pressed for time, considersaving a set amount each month, or look for ways to earn extra money. Even if you do end upneeding to ask for money, you’ll have peace of mind knowing you’ve looked at all the options. And, who knows, maybe you’ll realise you don’tevenneed as much money as you initially thought.
How to ask for money from family: top questionsto address
Start by choosing the right moment and place so you can have a productive conversation in a setting with no immediate interruptions in sight. Once you’ve settled in, here are the top things to address when asking forfinancial help from family:
Why do you need the money?
Even if your family member has the ability and willingness to help, you still need to make a good case for why you need their financial assistance.In our survey, we discovered that the biggest reason financial gifts were offered and received were weddings, with other popular reasons including assistance with living costs and to help clear debts.
When broaching the subject, be prepared, honest and clear. Bringinthe number–crunching sheet you’ve worked out and anyother documents you think arerelevant. But be open and letthem know exactly what you need money for and why your current budgetcan’t cope. This will help your family understand yoursituationbetterand offer their best solution.
How much money should you ask for?
Asking family for moneymight gettrickier if you’ve already asked them for help, but then realised later it wasn’t enough. This is why it’s always a good idea not only to come up with an exact amount of money, but the right amount as well. Don’t be tempted to ask for more than you need just to be on the safe side. Instead, mention that the amount you need is based on current circ*mstances and ask whether you’ll be able to have another conversation if thingschange in the future. Your family will likely be flexible and even appreciate your forward thinking.
How will you give back the money?
When you ask for money from a family member, consider if it will be a gift or a loan, and if it’s a loan, think of how you’ll pay it back. Consider repayment terms, including interest rate, as well as a timeline you’ll be comfortable with. Coming up with a repayment plan will often make the conversation with your familysmootherand they’ll be grateful you’re making life easy by suggesting a solution.If you need inspiration, we’ve put together an easyguide to working out conditions for a family loan.
Don’t forget to offer your family time to think things over, even if they’re eager to help. If you’re asking for a substantial sum, consider getting expert advice as well. A financial adviser will be able to guide you and your family through the process, while offering peace of mind for everyone involved.
What happens if you’re not able to repay the loan, or meet the conditions?
Unexpected events do happen and circ*mstances can change. Be open with your family and discuss what you should do if you find yourself unable to cope in the future. Have an honest conversation about the concerns you may have. It’s likely they’ll share the same ones, so addressing them out in the open, at the very beginning, sets the whole process ofborrowing money from familyup for success.
Top 4 tips when asking family for money
A successful conversation about money does rely ona bit of preparationbeforehand. Here are a few things to consider before sitting down with loved ones for the big chat:
1. Know the pros and cons ofasking a family member for financial help
You might be looking forward to the low interest rate from a family loan, but are you ready for the strain a money agreementmightput on your relationship? Here are a few advantages and disadvantagesto mixing family and money, but make sure you add your own to the list:
The pros of asking family for money
- Low or no interest rate
- Flexible terms and repayment schedule
- Quick financial help
The cons ofasking family for money
- Theuncomfortableconversation
- It might put a strain on your relationship
- Missed opportunity to build up your credit score
2. Choose the family member wisely
Whoyou’re asking for helpis a crucialpart of thedecision.Make sure it’s someone you’re in a good relationship with and, most importantly, that they’re in a good financial position themselves. Oftentimeswhat makes the conversation awkward isnot that you’re asking for money, butthat you’re asking the wrong person.So be mindful of their financial security as much as you are of your own.
3. Talk to an adviser
There are other reasons, beyonda potentialawkward conversation, that makeborrowing money from familydifficult.Did you know that moneygiftscan come with hefty tax bills too?Or that your family can do more harm than good by offering to help more than they can afford to?
Since most of us are unlikelytotalk aboutmoney with our familieson a recurring basis, wemight nothave enough experience to keep ourselves and our loved ones out of trouble. This is why asking for expert help is one of the best ways to keep potential financial or legal problems at bay. Plus, you and everyone in the family will feel safe knowing that you’ve found the best possible solution, while keeping your financial positions secure.
If you want to find out more about the tax that may apply to the money gift from your family, ourinheritance tax guideanswerssome of the most common questions.
4. Keep notes
Whether it’s a money gift that comes with certain conditions, or a loan with specific repayment terms, make sure you capturein writingall the responsibilities that come with thefinancial helpfrom your family. This way you can avoid misunderstandings, while having a document both you and your family can go back toifnecessary.
Next, read ourhandyarticleonCash Gifts from Parents where we go through all the reasons why it’soften considereda difficult conversation and how you can make it easier for you and your family.
This article is correct at time of publishing and for general information purposes only. We recommend you speak to a professional financial adviser for advice. You can find a financial adviser and further personal finance information atunbiased.co.uk.
