Make sure that you see your credit report for yourself and don’t just take a lenders word for it.
How to Borrow Money from a Friend or Relative
(From “6 tips on borrowing from relatives” by Jennie L. Phipps)
When people find themselves in a money crunch, a natural reaction is to turn to family for help. Parents, grandparents and siblings often are happy to lend a financial hand via a loan. But unless handled carefully, family members — not just the relative advancing the cash, but others — will be resentful.
“There’s no such thing as a family loan without emotional ties,” warns Azriela Jaffe, entrepreneur and author. “If you don’t understand that from the beginning, it will take you by surprise.”
Jaffe says borrowing money from parents, the most-common scenario, can put you back in the same place you were when living under their roof. “Mom and Dad are paying the bills and they feel entitled to tell you what to do. All of a sudden you are 13 again and rebelling.”
Faced with the need to rely on some all-in-the-family money, how do you minimize the potential for resentment and destructive situations? Here’s some advice from people who have been there:
Know from whom you borrow
Houston bankruptcy lawyer John Ventura says before you seek a loan, analyze your relationship with the lender. Ask yourself, “If I lose the money, what will be the outcome?” Relatives for whom money is an obvious emotional issue or those who really can’t afford to lose anything are not good lending candidates, he says. Moreover, you put people in a tough spot when they have to turn you down, creating hurt feelings all around. When you ask, be prepared to handle a refusal graciously.
Seek a co-signer
If the bank will accept a parent or relative’s signature on the note as a guarantee, go that route. Tom Gillis, Houston lawyer and CPA, put up bonds as collateral and signed his son’s notes twice when the younger man opened a heavy equipment manufacturing business. “It’s much more businesslike,” says Gillis. “The bank drew up all papers. All I had to do was sign my name.” The good news is that eight years after the first loan was made, Gillis’ son brought over a bottle of champagne and the paid-off notes.
Put everything in writing
It may be sufficient in a very simple transaction to write a letter that specifies the terms of the agreement. But the best way may be to get a lawyer involved, particularly if it is a significant sum of money. That protects both sides. “Give your family the same respect that you’d give a professional lender,” says Jaffe, author of the Complete Idiot’s Guide to Beating Debt. “In return, that increases the chances they’ll treat you with respect.”
Know the tax laws
If the loan is for less than $10,000, it will probably escape the IRS’ attention. But if your family loan is for a significant amount, make sure you understand the tax and other legal consequences, particularly if the lender dies before the loan is paid off. The IRS considers loans that are forgiven as taxable income. James Walsh, an insurance consultant and author of Family Money, suggests insuring the lender’s life for the amount of the loan as one way to guarantee repayment and avoid tax problems.
Give lenders something tangible
Specific collateral for either co-signers or lenders will ease concerns and ensure that they don’t lose everything if things don’t go well. Bankruptcy attorney Ventura says that if you are forced to file bankruptcy, provided you’ve structured the agreement properly, your lender will have a lien on your house or your car. That will put them at the top of the list of creditors. “You and your relative will get peace of mind. And if you have a close enough relationship and the item is repossessed, chances are it will just be given back to you,” Ventura says.
Tell the world your business
You may think the financial deal is just between you and dad, but family secrets are hard to keep. Siblings, in particular, are likely to be concerned about loans from parents. Gerald LeVan, managing director of LeVan Co., family business consultants based in North Carolina, recommends telling other close relatives how much you’re borrowing, why you’re doing it and then keeping them posted about how your financial affairs are going. “It cuts down on the feelings of favoritism and jealousy,” he says.
How to Clean Up your Credit Record
- Pay all bills on time.
- Pay off as much debt as possible.
- Try not to close too many credit card accounts.
- Pay off outstanding loans as soon as possible.
- Change your personal spending habits.
- Paying by Check
Some will ask What is a Cashier’s Check
The cashier’s check is known by many synonyms. It can be called a bank check, a teller’s check, a treasurer’s check, or an official check to name just a few. It is different than the type of check you would write from a personal bank account and usually considered more acceptable for certain transactions, because it provides in most cases, a guarantee of payment to the receiver of the check.
What makes the cashier’s check unique is that funds are not drawn from your personal account. As most people know, funds can shift in a personal account on a daily basis. Even if you can prove to someone that you have money in your account to cover a check, that might only be true for a moment or two. Checks are cleared in the order they are received and if you have other outstanding checks, the value of your checking account will shift when these checks do clear.
In order to get a cashier’s check, you withdraw funds from your personal account, or you have cash available. You then pay these funds to the bank that creates the bank check; this is often your own bank. Funds from the check are then drawn on the bank and not on your personal account. Thus, this form of check is considered secure, especially when issued by a reputable bank. There is very little possibility of a legitimate cashier’s check bouncing, since the bank is the payer of the check.
If a person fraudulently writes a check to cover the cashier’s check, the bank might try not to cash the check. In most cases, this is not an issue, since most people use their own banks to get cashier’s checks and the bank has immediate access to information about the person’s bank account. The bank won’t accept a check from a person to create a bank check if they know there are not sufficient funds to cover the check.
Some institutions will require a cashier’s check as a secure form of payment. For instance, you may need to get one for deposits on or purchases of automobiles, for deposits or first month’s rent for a newly rented apartment or for a down payment on a house. This really depends upon the institution or business. Some people find the process of obtaining these checks tiresome and in most cases, there is a fee attached to getting a check of this type. This fee may be a percentage of the total check or a flat fee and this again depends upon the issuing bank and your relationship to the bank, (such as your being a customer of the bank).
The rise in Internet fraud has prompted many to fall victim to phony or fake check scams. A “private” individual emails you regarding a check they wish you to deposit and in exchange you will transfer funds to them from your own account. These checks are often cashier’s checks and they can look very real.
It’s a good idea first off, to never deposit a check from someone you didn’t know yesterday and who is claiming to be from a foreign country or some such, especially when these folks contact you via email. Second, if you do accept cashier’s checks, be sure it is issued from a bank you know and verify independently of the address or contact number on the check, that the bank actually exists and is legitimate. If it is a bank you’re familiar with, verify with the bank to be certain the check isn’t a phony. This is especially helpful when it comes to private transactions between individuals, such as someone paying you with a cashier’s check to purchase something from you.