Love and money: 'I borrowed from a friend, it went wrong'

With nowhere to sleep, Jo and her five-year-old daughter found themselves riding around on the night bus until morning.

Without enough money to pay the rent, she says her financial position was "desperate".

Were it not for her daughter, she says she would have considered taking her own life.

Jo is not her real name. She does not want to be identified because of the trauma this episode caused.

After the night spent on the bus, she borrowed money from a friend.

"She did not give it to me for free," Jo says. "She would text me but I could not pay. The relationship soured."

Her experiences are far from unique. Millions of people borrow money from family and friends - a scenario that has increased during the pandemic.

The most authoritative guide to these trends is the Financial Lives Survey, published by the Financial Conduct Authority.

Its comprehensive survey suggests that in February last year, 5.1 million people borrowed money from friends and family members.

By October 2020, after lockdowns, furlough and job losses, this group had risen to 5.9 million people.

One really striking statistic revealed that, in the following six months, 19% of those asked - which works out at some 9.7 million people, nationally - expected to borrow from a friend or loved one.

Debt advisers say that for many this can be a sensible and fruitful process.

"I suspect that most loans are simply repaid. No-one talks about the loans that go well," says Sara Williams, who writes the Debt Camel blog.

"The dad that pays off your payday loans and gets you out of a debt spiral; the sister that lends you the money for a tenancy deposit. People are often very motivated and determined to repay these loans."

The advantages are obvious. Unlike commercial lenders, friends are highly unlikely to check your credit score. Family will generally charge no, or very little, interest.

That can make a loan more accessible and much cheaper.

Of those whose application for a loan was refused by a commercial lender between February and October last year, a quarter (26%) borrowed the money from friends or family instead, the FCA survey says.

Young people are particularly likely to ask friends and family for an advance to tide them over. About 19% of 18 to 24-year-olds had a loan from friends and family, compared with 10% borrowing via a credit card, and 9% via a personal loan.

So, it is common, but - as in Jo's case - it can go wrong.

Eventually, Jo received help from the debt charity, Christians Against Poverty. With "time and patience" she has got her finances in better order, and has help to buy things like school uniform for her daughter.

"It had been horrible, not earning enough for the rent and food," she says. "But they helped me with how to pay the bills and how to budget. You have to be patient. I do not know where I would be without them."

The very nature of borrowing from friends usually makes it informal. It does not have to be.

Pardner schemes - where a group of people pool their money together, handing over a set amount each week or month - are popular and successful among people from the Caribbean living in the UK, with an emphasis on saving rather than borrowing.

When the Windrush generation came to the UK they discovered credit services from banks were not easy to come by and pardners allowed many to save to buy homes or cars.

Credit unions are more formalised and regulated, but work on much the same premise.

Anyone borrowing money from a family or friend can draw on some of the successful aspects of such schemes.

"Put something down in writing," says Rachel Gregory, social policy manager at Christians Against Poverty.

That includes details of any interest or extra payments that are expected.

Various new ventures have sprung up offering professional mediator and go-between services for such deals.

The saying suggests that a friend in need is a friend indeed. Yet, someone considered as a friend could be manipulative and controlling after lending money.

At the extreme end of this scale, a seemingly friendly neighbourhood money lender might well turn out to be a vicious loan shark.

Ms Gregory points out that, by introducing economics into a friendship, the relationship might change.

"Even if it feels supportive at the outset, that does not mean it will always be that way. What will be the impact on the relationship if the borrower cannot repay?"

It may be kinder to encourage a loved one to seek debt advice rather than lend them more money, especially if it also puts unnecessary financial strain on the lender.

Some advisers suggest that if someone can afford to give money to friends or family, it might prove to be easier to simply give it to them.

"If you think your son may really struggle to repay a loan, a gift may be kinder and put less strain on your relationship," says Sara Williams.

"Whatever you decide, it is better to be very clear about if you want the money to be repaid, and over how long, and to put this in an email or a letter. A standing order paid each month may feel the most straightforward way for both of you."

It is not difficult to find stories of relationships breaking down due to money problems.

Friends, partners and families can split over an unpaid debt - irrespective of the amount.

Someone who is owed money does have options in trying to retrieve the debt, but they are more limited than a formal loan.

Ms Williams has written a guide on the subject.

She points out that potential legal avenues may only be available with proof that the loan was made, and can cost money to pursue.

"If things go wrong and a loan isn't repaid, it is normally better to try to sort out repayment terms that would be affordable," she says.

"That letter saying the money was a loan that has to be repaid at £80 a month may help you win a court case, but if someone has had their income drop, they may literally not be able to pay that much."