Getting a loan from a friend or relatives, which is often called cash lending, carries its own set of pros and cons.
There is often an issue with cash lending service and that has been the cause of many disagreements and souring of relationships between various friends, relations and even close family.
One of the benefits of borrowing from friends and family is that you can typically land a lower rate. Also, you don’t have to jump through the same financial hurdles to be approved. Because they are eager to help you achieve your goals, friends and relatives will often lend to you in cases where banks would not. However, there are many shortcomings of using this service as well.
Cash lending In Sri Lanka
Accepting loans from loved ones isn’t just problematic from a legal perspective. Mixing business and pleasure can also complicate routine social interactions.
One of the disadvantages of owing money to loved ones is that it may open up unwanted dialogue about your spending habits. Whereas a bank won’t tell you to stop going out to dinner or discourage you from buying a new car, lenders who are also friends or family may criticize you for spending money when you have yet to repay them the debt.
Accepting a loan from a friend or family member may allow you to avoid banks and lenders while securing a lower interest rate. However, failing to set up clear and defined terms for repayment could be problematic for your personal relationships, which often happen in these types of loans.
Taking time to make a solid plan and documenting your agreement formally can help all parties feel empowered and treated fairly. But it is rare for this to happen in Sri Lanka, since many will reply on the spoken words and not resort to written and signed agreements fearing that requesting for this would insult the relationship with the other person. However, the lack of clarity and documentation can be detrimental if borrowers and lenders have different expectations.