Common reasons for needing a loan are buying your first home or a car, or needing to pay for a large medical expense. Sometimes though, you just need some extra cash for an unexpected appliance repair or other surprise expenses. For such cases, you might hesitate to take out a bank personal loan or leverage your credit card’s spending limit.

Here are six reasons why a person-to-person loan with a friend or family member might be the best for your needs.

(1) You only need a small loan. Most banks aren’t willing to offer small loan amounts. If you just need ₱10,000 for that car repair bill, the bank is not an option. 

(2) You need fast access to cash. Personal loans from a bank may take days for approval or disbursement. Friends and family understand if and when you need money right away.

(3) Usually no collateral required. Family and friends don’t usually ask for collateral, due to your relationship status and high trust factor. Collateral is an asset (such as property or a car) that you offer up as a guarantee that you will repay your loan. If you default on the loan, the collateral asset becomes the property of the lender. This is known as a secured loan.

(4) Flexible terms. You can negotiate how much you will pay back and by when. Weekly payments? Monthly? Lump sum due on a certain date when you get your annual bonus? Lending money between friends and family offers flexibility that banks and credit cards can’t match.

(5) No to low interest rate. In many cases, due to the personal relationship, the lender will not charge any interest rate to the borrower. This means that if you borrow ₱1,000, you will pay back ₱1,000 rather than ₱1,247.95 (based on equal monthly installments of ₱34.67 at a 15% interest rate over three years.) Compare that to credit card payments at 29% interest over the same term: that would be ₱1,508.61 paid back against the ₱1,000 loan! 

(6) Learn fiscal responsibility and build trust. When your kids see you documenting a loan between friends and family members (especially between parents and their children), that can train teens and young adults to not only be responsible with their money but also instill the good habit of fulfilling obligations.