Managing Your Money : MONEY AND LOVE : Family Tithes : Beware when borrowing from loved ones. Clear contracts make close relations.

The problem with borrowing money is that if you really need it, a bank probably won’t give it to you. Loan sharks charge too much, and stealing is illegal. So we fall back on friends and relations.

The practice is as old as currency. Older, probably. And for probably the entire time, borrowing from parents, spouses, friends and other loved ones has been fraught with emotional peril.

Commentators and sages have always had a lot to say about borrowing and lending, and they’ve been pretty consistent in wagging a stern finger at the practice.

“Borrowers are nearly always ill-spenders, and it is with lent money that all evil is mainly done,” John Ruskin carped. And Polonius warned windily in Hamlet: “Neither a borrower, nor a lender be/For loan oft loses both itself and friend/And borrowing dulls the edge of husbandry.”

Today, of course, psychologists have supplanted sages, but practitioners in the emerging field of financial psychology are just as wary of money’s power to upset the interpersonal apple cart.

“Money shifts the dynamics of any relationship,” says James Gottfurcht, a financial psychologist and personal finance author.

Possible side effects: The lender may assume a power position, feel controlling and expect to be treated with greater deference. Gottfurcht says these tendencies can be subconscious, so even if the parties are mature and well-adjusted, the relationship may be strained.

“It changes the currency of the relationship to a currency of obligation, shame and guilt,” says Kathleen Gurney, a financial psychologist and author in Cincinnati.

This is especially true when turning to First National Mom and Dad.

“Borrowing from your parents puts you back in a very childlike position,” she says.

Problems most often occur because the loan terms are left vague. Children don’t want to think of parents as creditors. Parents may assume veto power over future marriages or names of first-born children. Neither party is sure when or how the money will be repaid. All are uneasy.

Of course, loans within families can work. Among some immigrant groups, for example, such lending promotes strong family ties and upward mobility. Says Gottfurcht: “It can definitely strengthen a relationship.”

But if you still aren’t sure that serious voodoo can attach to any dollar passed between family members, consider the story told by a trade magazine editor we’ll call John Bartleby.

His mother is a portrait painter who frequently finds herself financially embarrassed. She relies on Bartleby for bridge loans, some of them substantial, that he knows she’ll never be able to repay.

“My mother knew what she was doing when she chose such a bohemian lifestyle,” he says. “But then I start thinking, if she hadn’t had me, then she might not have compromised her career for so many years, and she wouldn’t be in this situation.”

So when it comes to borrowing from friends and family, a dime’s worth of prevention is worth a dollar of cure. The best way to avoid tensions is to be businesslike about it. Otherwise, Gurney warns, “it can destroy the intimacy of the relationship.”

If it’s clear that the loan can’t be repaid relatively soon, agree on a structured payment plan. This eliminates a borrower’s natural tendency to assume that he can service the debt at his leisure, and saves the lender from second-guessing when she sees the borrower spending money on something else.

“Make sure it’s clearly understood what the terms of the loan are,” warns Robert Gardner, a certified financial planner in Los Angeles. “Write it down. People think, ‘It’s family, it’s friends, don’t bother to write it down.’ Wrong!”

Another touchy subject is interest. People feel uneasy charging a friend or loved one. On the other hand, money isn’t free. Consider the investment interest forgone during the loan, not to mention the risk of default.

“It’s up to the two individuals to iron out,” says Gottfurcht. “Some families have a deep businesslike ethic, but I have a more unconditional attitude. I think it’s nicer if you can do it without interest.”

Then there is the question of borrowing from one’s romantic partner. “If at all possible, don’t do it,” says Gurney. “Love is very fragile.”

Adds Gottfurcht: “I’ve seen a lot more of that, especially in the last year or two.”

Veronica Crawford, a 27-year-old pharmaceutical saleswoman who asked that her real name not be used, loaned $1,000 to her unemployed boyfriend, who eventually borrowed more from her until the relationship finally ended.

“The loan called attention to a pattern of behavior--financial irresponsibility--that I decided I couldn’t live with,” she says.