My Experience With Family Loans

When I graduated from college with stars in my eyes (I was on my way to NYC!) I knew that I was in the most precarious financial position of my life since my parental financial support was about to be reduced from full support to minimal, if any, support. Fortunately for me, many members of my family are in a better financial position than I am. I asked my older sister, with her well paying Silicon Valley tech job, if she would be willing to provide me with a loan for my graduate studies. She thought about it and graciously agreed to loan me up to the annual gift tax amount ($10K at that time) interest free.

At that time, I never thought about how the loan might alter our relationship or put a strain on my finances. I was only in grad school for one year and I assumed that I would easily find a job post-graduation that would allow me to pay off all my debts (family and education). I did not realize how difficult it would be to find a job or what my living expenses really added up to be. I was lucky that I had some money saved up, so when that educational loan became due (when my sister needed the cash to finance her home purchase), I was able to return the money to her. Had I not been able to pony up the cash, it could have caused a serious strain in our relationship. From this, I realized that in borrowing money from someone close to you, it's important to think about how it might alter the dynamics your relationship, when you will need to return the loan, and whether it's worth the potential pitfalls.