April 8, 2012

The recession has hit and the economy has suffered. This has obviously harmed the country and the world as a whole. However, macroeconomics, which is the world economic picture is not the only thing that has suffered as a result. Microeconomics, or the impact of economic downturns on people have also been harmed by the economy. As a result, more individuals are finding themselves in dire economic positions. Sometimes this economic position has been caused by the loss of a job or by a major life event occuring, such an illness or due to children beginning college. Other times, it is due to a decline in assets held by a family, such as through a reduction in home prices and stock prices owned by a person. These asset declines may be worse than expected if they were purchased with significant amounts of debt. In these cases, many people may find themselves with large amounts of debt, but with little to show for it. This is certainly a precarious position.

The situation outlined above, in which people find themselves with debt and with declining asset values is a common one in today’s society. Often these asset decreases are temporary in nature, and if a person or family can hold off on disposing of these assets at depressed values, the prices of these assets will recover and the individual will be able to get out from under the crushing debt that they find themselves in. However, when traditional lenders such as banks analyze the position that an individual is in, that is, signficant amounts of debt without sufficient assets to dispose to pay off this debt, they may be hesitant to lend them additional funds. This is because these lenders are typically afraid of a person declaring bankruptcy to remove these debts, which would leave the lender out of luck and unable to recover on their investment.

As many lenders, such as banks, lend to wide ranges of people, and do not have the time or resources to ascertain the quality of the person and their ability to recover from this debt, they often have broad criteria that they use to apply as minimum lending standards to all people. As a result, you may not be able to finance yourself in the short-term from traditional lenders, so that you can recover on your investments and improve your overall financial picture.

One place that many people turn to in order to obtain financing in these circumstances are personal loans from friends, family members, loved ones, and other third parties. Personal loans can come from many different places, but do not involve large or small companies that are vested only in the return that they can gather from their loan. Many family members or others who care about you are willing to lend you money when you are in a difficult financial position because they are aware of your character and understand that, in many circumstances, even if you do declare bankruptcy, you will not discharge your personal obligation to that person who helped you out when you were in financial strife. Many borrowers simply would not have those feelings towards companies who lend them funds, so they, as a result, are unable to obtain loans in the same manner.

Personal loans are also more beneficial to a borrower than distressed loans, as distressed loans, which are still available to borrowers in financial stress, may have high interest rates attached to them. A loan from a friend or loved one often would not carry the same punitive interest rate or terms, which is beneficial to the borrower and may allow them the time and ability to recover from these financial problems.

Asking a friend or a loved one for a loan may be difficult for many people. Often, the best way to go about it is to build on your relationship with the lender by being honest and expressing to them how you got into financial problems to begin with. Display your full credit history and a detail of your finances and provide to them a plan regarding how you will use these funds to turn around your life and eventually pay them back. Be willing to sign a document supporting the loan you receive from these parties, and make this loan as professional as can be. Express how difficult the position is for you to request a personal loan and how you wish you didn’t truly need to do so. Emphasize how much the loan will help you sort out your finances and your life.

Making a loan to a loved one in need is generally more of an emotional decision than a logical decision. Most people charge no interest or below market interest rates on these loans and repayment terms are often spotty or loose. Leverage off of these emotional feelings in order to receive a loan from a person you know, but also provide them with a detail of the logical reasons regarding why and how you will be able to repay this loan. This way, you are able to heighten your chances of receiving a personal loan from a loved one.