A money changer counts U.S. dollar bills at a currency exchange office in central Istanbul

How to get family to lend you money at a low cost

Who likes to borrow money? Nobody. But sometimes you have no choice. And when you need a loan, you probably want it as quickly as possible and at the least possible cost.

In my experience, one of the very best ways to achieve both those aims is to approach your family. Even if you have a checkered financial past or have a rocky relationship with some of your kin, there is a simple process by which you can make this happen. Here’s how:

1. Your Plan

Before picking up the phone, pick up a pen and pad of paper or the electronic equivalent thereof. You need to craft a well thought out plan before you talk to anyone about lending you money. This way, when you find someone interested in hearing more, you’ll be prepared.

Your plan should include:

By providing all this information, you demonstrate that you take the issue very seriously. My suggestion is to prepare a little report with answers to all of the questions above and distribute that report to the people you are going to approach.

Insert a note that you are going to put the payments on autopay which means the bank will automatically take the money out of your account each month and deposit it into your lender’s account. This way they won’t have to worry about running after you each month to get their check.

Side Note: If you look at your current cash flow and determine that the only way you’ll be able to repay a loan is to get a side job, get the job now before you ask for a loan. This shows a high level of seriousness and it will really pay off for you.

2. Your List

An employee poses with the bundles of Indian rupee notes inside a bank in Agartala

After you create your report, make a list of all the people your are considering approaching. Rank each person on your list based on the following criteria:

  • Can they afford to make the loan? (If not, take them off the list).
  • Do they trust/like you?
  • Do they make non-traditional investments?

Now, based on how you answered the questions above, rank everyone on your list starting at the most approachable

Just remember that you aren’t asking for a favor. You are asking for support but you are also offering an opportunity to support someone they care about (you) and earn more money than they other wise might.

3. Practice

Now that you’ve got your plan together, it’s time to perfect your pitch. The best way to do that is by practicing your presentation on your spouse and maybe a friend or two. Since you are probably going to call your would-be lenders, practice by calling your financial guinea pig – even if they are sitting across the living room from you.

After your practice sessions, find out what the other person liked and disliked about what you said. Learn, improve and practice again.

4. Make The Call

Now that you’ve written out your plan, have a list of people you want to talk to and perfected your approach, it’s time to connect. As I hinted above, do this either via the phone or in person. Please do not use email for this. It’s too impersonal and it’s easy for the person who receives the email to misinterpret your intentions. Insist on speaking with the other party directly.

Start off by telling them why you are calling. Explain how much money you need and why. Then go into details about how you are going to repay the loan and over what period of time.

Don’t forget to tell them why you think it’s a great investment for them. If you offer them 5% or 6%, that’s much more than they can earn in a bank and it’s a lot less than you might have to pay a third party. Last, offer to send over your loan plan document for their review. Then follow up with them after you’ve given them a few days to digest all the information.

Whatever happens, don’t expect favors and respect their decision, even if they turn you down. Go into your meetings with absolutely no expectations. If this isn’t a fit for Uncle Joe, it might be for Aunt Jane. All you need is one “yes”. And every “no” you hear gets you closer to the positive response you need.

Would this approach work for you? Why or why not?

Neal Frankle is a Certified Financial Planner in Los Angeles and chief editor of Wealth Pilgrim, Credit Pilgrim and Mcmha.org.