Why a personal loan is better than borrowing money from friends and family

6 MinsJuly 4, 2022

Most of us have borrowed some money from family or friends. Small amounts, say, for paying for your cab ride or for your share at a restaurant are generally settled in a day or two. But what happens when you need a large sum at a crunch? Should you borrow from friends or family or opt for a personal loan?

Why a personal loan is better than borrowing money from friends and family

When Suyush Patil’s 13-year-old son Pratik was offered admission into a cricket coaching program in Australia, the family could not afford to pay the fees of Rs 6 lakh within the deadline. When Suyush’s friends and family heard about this, a couple of them offered to pitch in with the funds. But Suyush opted to take a personal loan instead. Let us see what prompted led him to do so:

Clarity in transaction
A loan from family or friends would be a verbal arrangement. Even if both parties have the best intentions, it is quite possible that with time, one or both of them would forget the details of the agreement leading to confusion and stress.

On the other hand, a personal loan is a clearly documented financial transaction between the borrower and the bank. There is no confusion about its terms, tenure and interest rate.

Unfair on the lenders
Suyush’s friends did not expect him to pay any interest on the loan they were offering. But he felt that such an arrangement could be unfair to them. After all, if they didn’t lend Suyush the money and invested it instead, they could earn an excellent return.

Repayment through easy EMIs
If Suyush borrowed from his friends, he would be expected to repay the amount as a lump sum. This may prove problematic in case he doesn’t have the funds then.

With a personal loan, however, the repayment will happen through monthly EMIs (Equated Monthly Instalments). For instance, a Rs. 6 lakh loan at 16% interest for three years, the EMI would be about Rs. 21,000. Given that both Suyush and his spouse are working, this was an amount they could afford to pay.

[Also ReadFive questions to ask before availing of a personal loan ]

Builds a credit score
Taking a personal loan and repaying it on time would also help Suyush build his credit score. This will go a long way when it comes to borrowing in the future. For example, if Pratik wants to study abroad and needs an education loan, or if Suyush wants a car loan, then a good credit score will help secure a loan faster and on better terms.

Doesn’t risk souring relationships
To Suyush, the most important benefit of opting for a personal loan from a bank instead of borrowing from friends and family is that this way, he would not be risking souring his relationships. If for some reason, he cannot repay his friends on time, it would become a spoken or unspoken stress point in the relationship and lower his self-esteem.

Why risk all that when Axis Bank offers personal loans at affordable rates and flexible tenures? Axis Bank offers Personal Loans ranging from a minimum of Rs. 50,000 to a maximum of Rs. 40,00,000. Axis Bank Personal Loans come with tenures ranging from 12-60 months. So, check out what works for you.

Any salaried employee of a public or private limited company or the government sector between the ages of 21-60 and having a minimum monthly income of Rs. 15,000 is eligible for an Axis Bank Personal Loan. You need minimum paperwork to get this loan: Identity proof (Aadhaar card, driver’s license, voter ID), PAN card, proof of residency, and salary slips.

You can find out more about personal loan eligibility and personal loan interest rates or use Axis Bank’s EMI calculator for personal loan online.

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