Loans what to do when Friends and Relatives don’t Pay you Back

We all have the occasional problem with finances and cash-flow and sometimes that means we need to turn to someone for help.  If this happens to be a situation one of your friends finds themselves in and they come to you to borrow money, it will be difficult to turn them away.  And nor should you if you can help. However, if you are going to lend money to them then you must be prepared for the consequences.  The fact that they are in such financial difficulty that they have turned to you in the first place gives an indication that their finances are not as good as they could be.  You have to face the fact that not everyone is very good at managing their finances and you should be prepared for not receiving all your money back.

Also, be aware that lending money to friends is one of the common causes of friction in friendships, just watch a couple of episodes of Judge Judy to see the problems that might occur.  This can arise on both sides of the friendship. For example, some people will feel obligated to pay back to their lender friend as quickly as possible in a manner in which they would not with an institution, such as a bank. However, even though this is a facet of their own personality, they may blame you and become resentful. This feeling of obligation and pressure may make them wish to avoid you and lead on to damage the friendship. More common though is when the opposite happens. The person that you lend money too may feel that they can be less formal about making the loan repayments and take a more casual approach to paying you back. They may feel that as you are a friend you will be more accommodating and not mind this. Of course you will mind someone taking you for granted in that way and so friction builds. This can lead to arguments and again cause real damage to the friendship.

One of the ways that you can avoid these problems is to be very clear on the terms of any loan you make to a friend. Formal agreements between friends may be difficult to broach because of the nature of the trust in your friendship. However, being absolutely clear about how much will be repaid and when these payments will be made can help to ensure that you support your friend in their time of need while maintaining that friendship for the future.

If you have lent money to a friend, and they have passed the point where they should have repaid some or all of the money, then you need to tackle the issue head on. If it is a small amount you can afford to lose and their friendship is more important to you, you might write it off. Otherwise tell your friend that you are disappointed that after helping them they have not started to pay back the money nor told you that there might be a delay. This may be sufficient to prompt payment although it may cause a small rift, which hopefully will heal over time.

If after reminders the money is still not being repaid you should be more assertive and agree a payment plan with them. Again this may cause a temporary rift. If after all this there is still no repayment you may want to consider a small claims court, assuming the amount is not too large. This though is likely to signal the end of that particular friendship and you have to decide which is more important to you. If you intend to turn to legal redress you must also be prepared to say good-bye to that friend.

If the money is important to you, and let’s face it you have your family to think about, and your friend is not showing any signs of paying back the loan, you might consider other options. It may be that you will have to get quite assertive with them. I’m not suggesting any violence, but you may have to be very in their face when you ask for the return of your money. Leave them in no doubt that you expect repayment and be very clear about how much you expect and when.

As a final option, where cash-flow reamins a problem for the borrower, you might consider payment in kind. I don’t mean any illegal deals but simply that your friend or relative might have something else of value that they can provide to discharge their debt. For example if they are a mechanic and you need your car repaired, there is an obvious way in which you can get back something that is valuable to you and saves you money, This saving could be set off against the debt. It’s probably not an ideal solution, but one that might work and keep relationships good.