What if I Lend Money to a Friend and They Don’t Pay Me Back?

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You’re a fearless boss girl with a heart of gold. When your friends are in a bind, you ungrudgingly respond to their calls for help without hesitation, because that’s what good friends do. Good friends are the ones that you can count on, and they’re mutually beneficial. They say that you can’t put a price tag on friendships, but when a friend asks to borrow money, that may be exactly what you’re forced to do. When you make the decision to lend money to a friend, you should be aware that it could have an unwanted impact on the trajectory of your relationship.

lending money to friends

We all need money to survive, and for many of us, there will be times in life when we run short on funds. If you’re just starting off in your career or starting over, money is often tight. Even if you’re doing well financially, major mishaps can surface when you least expect them. There are several ways to get access to money on short notice: you could work freelance gigs, put in shifts at an hourly job, pawn, rent or sell your belongings, teach classes, or start a side hustle to earn the funds that you need — but each one of these solutions comes with a unique set of challenges. The quickest, easiest and most painless solution — at least in the moment — is often to borrow money from someone close to you.

If you’re financially stable, you may never have to ask someone close to you to bail you out — which means that you may be the person your close friends ask for a loan if and when they get into a financial bind. Being on either side isn’t easy, and both sides have complications. Unless you are lending money to a friend without the expectation of repayment (and in that case, technically it’s not a loan; it’s a gift) then you should be aware of the potential challenges that may lie ahead.

What happens when you lend money to a friend and they don’t or can’t repay you?

As soon as the money leaves your hands, there is no way to know what will become of that money in the future. What you can do is prepare yourself and know what to do if your friend doesn’t pay you back as expected. Here are a few ways to handle your friendship with care while holding your ground on your financial agreement.

Don’t go the passive-aggressive route. Be direct.

You want your money back. And then again, you don’t want to lose your friend. Taking all of this into consideration, you must be mindful of your approach in asking for the money.

Do consider your friend’s circumstances and put yourself in their shoes. If your friend is slow to repay you, it is possible that they simply don’t have the money. Yes, it is possible that they never had any intention of returning the funds, but as a friend, try to give them the benefit of the doubt.

Keep the lines of communication open! Don’t stay silent when your friend misses a repayment deadline; reach out to them and ask how they’re doing. Gently remind your friend about the money owed, and ask if they are able to make the payment, or offer to establish a new date for repayment. If you let your frustration linger, you will only build up animosity and resentment. Ask for your money in a confident and positive manner. Remove aggression from your tone and be direct, without expressing blame or using a guilt trip. Unless your friend told you how they planned to utilize the money, don’t ask. The money is no longer in your hands, so how it was actually spent isn’t relevant.

Be smart.

A handshake or verbal agreement is unlikely to do you much good in recovering the money from your loan. If you failed to give your friend a written agreement when you gave them the money, you can always ask if they are willing to sign a repayment agreement after the fact. If they’re not, that’s a good indication that they never intended to repay you and thus, are not really a friend at all.

Before you agree to lend money to a friend, iron out the terms of the loan and details for repayment. Will the money be returned in a lump sum, or repaid in installments? You can find templates for written loan agreements online. These agreements can be used in court, but make sure that you backup your agreement with a paper trail. Do not loan someone money in cash; make sure you have an electronic record of the payment and include “loan” in the payment description. Save any text message or email correspondence regarding the loan.

In the end, you must decide for yourself which carries greater importance; your friendship or the money. If you do choose the money, you can consult a legal professional to explore your options — but keep in mind that legal representation can often end up costing you more than the money owed.

Know where you stand.

Think like an online lender or a bank and take what you know of the borrower’s financial history into consideration. Before you lend money to a friend, you should assess their financial habits and if they have a pattern of careless spending. If they tend to be negligent with funds, then it is unlikely you’ll see your money again.

If your friend is having a personal emergency and you have the means to help out, consider giving your friend money as a gift and move forward. One of the best parts of being financially successful is having the ability to be generous with those you love.

Don’t stop giving.

Lending money doesn’t have to turn ugly. Your friend may repay your loan in full without you having to ask, plus interest. If one friend does not repay you, don’t let their actions deter you entirely from helping others. It is a learning experience, and next time you will be more prepared if something goes wrong. Remember to establish clear terms and expectations before the money is exchanged. As a general rule, when you lend money to a friend, don’t give them more cash than you can afford to lose. Friendships are precious, and the money we exchange within them should be treated with the same care and respect that we have for our friends.

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