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The family loan: A good idea?

According to new research, Britons currently owe more than £251 billion to their families.

The financial debt is having an adverse affect on relationships with nearly one in five people in family debt falling out with loved ones as a result.

It is estimated that more than eight million adults are in serious debt, which is an increase of 30 per cent in the past year.

More than 8.2 million people, equivalent to 18 per cent of the UK adult population, have £10,000 or more of unsecured debt, including credit cards, overdrafts, loans and store cards.

Borrowing large sums of money from those close to you is quite common with half (51 per cent) of Brits been given a hand-out to a member of their family during the last 10 years, with 11 per cent of these lending over £5,000 and four per cent over £10,000 as a single payment.

While it’s often parents financially supporting their offspring, with 47 per cent lending the largest single amount of money during the last 10 years to their son or daughter,  the tables are turning for many grown-up children with more than one in 10 (12 per cent) lending funds to their mum and dad.

Coming to the rescue of their parents, a third of children who have lent money are paying off bills their parents have accumulated, with eight per cent shelling out for household repairs. The cash is also being used for investment purposes, with five per cent lending their parents money to purchase a property and seven per cent to buy a car.

However, loaning money to family members does make people feel they should have a say in how it is spent. One in 20 said they felt disheartened as they believed their money had been used unwisely.

Feeling as though their relatives have taken advantage of them, nearly one in 10 said they felt it took too long for them to get the money back with seven per cent reporting that their family had made no attempt to repay them at all.   

One in 10 said they felt their family took them for granted with nine per cent admitting they were reluctant lenders in the first place and were pressured into the loan.

It's a well accepted fact that many homebuyers rely on the "bank of mum and dad” for help purchasing a property, but it seems getting loans from family is extending to other areas, such as for paying bills.  It is understandable for us to go to the people closest to us with our money troubles, however when the cost of modern living is rising all the time, the cost of relationships that suffer as a result should also be considered.

By accumulating some savings, people could be less reliant on their families for handouts, but when you're struggling with money in the first place, that can seem daunting.  However, opening a regular savings account - where you put away a little each month - is an easy way to get started.  If you set up a standing order so that the cash is transferred from your bank account as soon as you're paid, you won't even notice it's gone.

The author is Melinda Varley who is an experienced journalist currently specialising in articles for the financial field. Melinda has held several positions for magazines and newspapers and has written hard copy and for online audiences, both in the UK and Australia, which is where she originates from.

This debt consolidation article was written on the 20 November 2007.

This article does not represent ‘financial advice’ as each person's individual requirements will be unique to their needs. If there is something in the article which you wish to rely on then please check those details with the person with whom you arrange a secured loan, remortgage or other financial service.

The views in this article represent those of the author and not those of Netbasic Limited.