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How to Handle Loans From Parents

How to Handle Parental Loans

There are many sources out there that will tell you to consider any loan to a family member as a gift. And while going into the situation with low expectations would serve a relationship well, what about the loaning person's finances? Many 20-somethings are turning to their parents for help in the midst of a tougher mortgage scene, and are counting on them to pull through with a familial loan.

Any situation where money passes through related bank accounts should be handled with care. Especially when it's a large sum — a down payment for a new home or a heavy medical expense — where it's obvious that you're asking for a loan and not a gift, which means you intend to pay your parents back in full. These transactions should come with some guidelines. To see what you should consider before entering into this type of arrangement just


  • Consider your parents finances and only ask them for help if you think they can afford it.
  • Be confident that you can repay the loan by coming up with a realistic payment plan.
  • Put all of the details in writing, including interest rate and payment schedule.
  • Sites like Nolo and LawDepot have promissory note templates that could serve as your IOU to your parents.
  • The Wall Street Journal suggests that you could formalize your loan through Virgin Money or ask an attorney to help draft a loan agreement.


Join The Conversation
shanimalcracker shanimalcracker 9 years
I think this is good to know since I'm trying to figure out finances for Law School this fall. My parents are willing to foot the bill, but I definitely want them to know it's not just a monetary gift to me.
longhorn_sugar longhorn_sugar 9 years
just don't take the money! work your butt off and be debt-free!
CaterpillarGirl CaterpillarGirl 9 years
Rule #3 never borrow money from family members. My mom has helped me in the past, and i couldnt sleep till i paid her back, I just dont do that now.
SugarCat SugarCat 9 years
My mom has bailed me out of financial trouble on more than one occasion, but I always have paid her back. Currently I owe her a few hundred for a few things she helped me on over the past year. I plan on getting it paid off by year's end.
supercoolnat supercoolnat 9 years
This is a hard one, since there's been a lot of anger and resentment in my family in the past due to loaning money. I've sworn that I will not borrow money from my parents or family members for things like a mortgage down payment or car. I've been working hard to put myself in a financial situation where I have the security to not have to do that. And I will not lend money out to family members either, not because I don't trust them, but because I know how it can change relationships. That said, my sister has asked to charge something important on my credit card because hers was maxed out, and that was knowing my "policy" on not lending (she was very scared to ask). I did it, and she sent a check in the mail that day. I made sure she understood that it was a one-time deal, and I've never had to bail her out again.
princessjaslew princessjaslew 9 years
what can I say? My parents funded me through college and now are funding me through graduate school. Do I have any intention to pay them back? Yes. Do they have any expectations that I will? No. As far as they are concerned, I"m their child, they want to make sure that I have every opportunity to excel in life. That said, I have every expectation of paying them back. How can I not? They are my parents! They will retire one day and I want to make sure they live comfortably!
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