What is a cup loan?

A cup loan refers to a type of informal lending system where a person borrows money from a group or network of individuals, typically friends or relatives. The term "cup loan" comes from the practice of passing around a cup or container to collect contributions from each member of the lending group.

In a cup loan arrangement, borrowers are typically able to access small amounts of money quickly and without the need for extensive paperwork or credit checks. However, these loans often come with high interest rates and strict repayment terms, as the lenders are usually individuals who may need their money back within a short period of time.

While cup loans can be a convenient and accessible source of funding for those in need of quick cash, they can also lead to potential conflicts and strains on relationships if the borrower is unable to repay the loan as agreed. It is important for both borrowers and lenders to establish clear terms and expectations before entering into a cup loan arrangement to avoid misunderstandings or disagreements in the future.