When you lend money to friends or relatives, it can be difficult to guarantee the repayment. Borrowers often feel uncomfortable asking their friends or relatives to pay, and borrowers may feel embarrassed about their slow repayments on personal loans.
Tips for getting repaid loans to family or friends
If you’re in a situation where you’re considering lending money to a friend or family member, it’s important to put yourself in the right place before taking the loan. If you have the financial means, consider making it a gift instead. If you do end up losing money to a family member or friend, here are a few tips to improve your chances of getting a refund.
Being direct applies both to your communication before you make the loan and to how you handle things while you wait to be repaid. If a family member or friend asks you for money, consider writing down an agreement on how and when the money will be returned. It may not be something legally enforceable, but it does two things. First, it makes the appointment more formal, which increases the likelihood that the borrower will take it seriously. And it also ensures that both of you are on the same page regarding the details of repaying the loan.
It’s also a good idea to communicate directly during the refund period. This is where having a written document to refer to can be helpful. Try not to be passive-aggressive or make snide remarks if you see your friend with a new phone or other expenses that you think are weird. Just be direct with your expectations.
Don’t let too much time pass
A mistake many people who lend to friends or family make is letting too much time pass without mentioning the loan. While you don’t want to constantly harass your friend for a refund, you also don’t want to just forget about them. That is another reason to agree on a simple repayment plan in advance.
The more time passes without the borrower paying, the more embarrassed he may feel. That can lead to uncomfortable feelings, or they try to avoid you, which can cause even more discomfort. That’s why it’s best to be clear upfront with expectations about a realistic repayment schedule.
Be empathetic and don’t take things personally
Mixing money and friends is dangerous, and another tip for keeping them separate is to treat it like a business transaction. If you ran a business, would you give this person a loan? If not, that could be a good indication that you need to be careful. Suggest alternatives such as credit cards, savings or personal loans.
If you’ve loaned someone money and they’re having trouble finding the means to pay you back, be understanding that their financial situation involves many factors, not just their relationship with you.
Propose a payment arrangement
Coming back to the idea of pre-drafting and agreeing to the terms of the loan, it’s a good idea to have a written payment plan. Will the money be refunded immediately once they have money left (e.g. on the next payday)? Or are the payments spread over the coming weeks or months.
Making sure you’re both on the same page can save hurt feelings when you see them out to dinner or with a new iPhone while you pack your lunch to save money.
Having a written agreement not only provides borrowers with a path to payback on personal loans – it also gives the lender legal guidance in some cases. If the amount is something you need to get back, a written payment plan can give you the option to pursue the money more formally.
If you’ve tried other ideas, and you’re still struggling to get a refund, it may be time to consider alternative forms of payment. Trading can be a solution, depending on your relationship and their skills.
One idea might be to have them babysit your kids while you go on a date with your spouse. Or maybe they have certain tools or skills that you can use in exchange for writing off the debt. Swapping can be a workaround that will allow you to put the guilt behind you and restore the relationship.
Let them pay for you in other things
Along the same lines as bartering, you can consider getting paid back in other (non-monetary) matters. It can get a little tricky because you both have to agree on something to use as payment and agree on the value of that item. But if your friend or relative is still having money problems and can’t pay you back, this could be something to consider.
You have to be careful how you present this though, as it can be detrimental (not to say tasteless) to your relationship if they feel like you’re trying to take advantage of them. It might seem odd if you wear an outfit that used to be theirs at the next family gathering.
If you decide to go down this route, it’s best to approach it with an open mind – ask them if they have something they want to get rid of that makes sense rather than paying off the debt. That leaves them in control of what they may be willing to give up, while also reminding them that the repayment is still outstanding. If you occasionally go out to eat or drink, see if they’re willing to pay your bill.
Let it go
If all else fails, you may have to choose between your friendship and the money you borrowed. If all your other ideas have failed and you’ve still lost the money, you may eventually decide it’s no longer worth continuing.
Sometimes giving up trying to get paid back is what’s best for the relationship and your overall sanity. Instead of calling it a loan, think of it as a gift. And depending on the specifics of your situation, you may decide to actively let your friend or family member know that you’re not going to try to collect again or just passively let it go.
Is lending money to a friend or family a good idea?
The decision to lend money to your friend or family is not always an easy one. Sometimes there are as many reasons to say no as there are to say yes, but depending on the circumstances, you don’t have much time to decide.
Ask yourself the following questions before lending your friend or relative money:
- What do they need the money for: You may feel more comfortable lending someone money if you know why they need it. For example, the money used for car repairs could be considered an emergency expense.
- Can you afford to borrow the money? If you lend money to your friend or relative, you want to make sure it doesn’t affect your ability to cover your expenses while you wait for them to pay you back.
- When can they refund you: Ask your friend or relative when they can repay the loan so that you can better understand whether this is a short-term or long-term loan. If it’s a long-term loan, you can come up with a repayment plan together that will allow them to pay you back over time, if that’s easier than paying back the loan all at once.
- Have they borrowed money before?: If they have borrowed money before and paid you back on time, don’t doubt their ability to pay back another loan. However, if they have borrowed before and have taken a long time to pay you back or haven’t paid you back yet, there is a risk of history repeating itself.
When you lend money to friends or relatives, securing repayment can be difficult. Borrowers often feel uncomfortable asking their friends or relatives to pay, and borrowers may feel embarrassed about their slow repayment rates on personal loans. Agreeing ahead of time on the time frame and strategy for repayment can be a good way to minimize hurt feelings. You can also suggest that they take out a personal loan, and don’t forget to tell them to research the best personal loan rates they can qualify for.