Friends and money don’t usually mix, and loaning money to friends rarely ends well.
I’ve borrowed money from friends in the past. But it always makes me feel so uncomfortable that I end up paying it back ASAP.
But what happens if you’re the one putting money on the line?
If you’ve loaned money to a friend or a significant other, you deserve to be paid back — no matter how large or small the loan. Here’s how to get your money back and still remain friends afterward.
1. Gently remind your friend of the loan
When loaning money to friends, the first step you should take is to make sure your buddy remembers that the financial contribution was, in fact, a loan.
In 2012, the Journal of Economic Psychology published a study demonstrating how borrowers often rewrite the circumstance of the loan in their heads to the point where they believe the money was a gift.
Consider approaching your friend in a neutral setting and saying something like, “Can we talk about the money you borrowed last month? I’m in a tight spot and was wondering if you could repay the loan now.”
You can also remind your friend of the specific purpose and amount: “Hey, where are you at with that $100 I loaned you for the concert last week?”
Try to keep it casual and non-threatening. In many cases, your friend might have just forgotten.
A more difficult situation may be if you’ve loaned a much larger amount to your friend.
In that case, you might need to broach the subject a little differently: “Are you struggling to repay that $2,000 I lent you for car repairs a couple months ago? It’s ok if you want to create a payment plan.”
In some cases, it’s impossible to be gentle. And while it’s embarrassing for everyone when you need to figure out how to get money back from a friend, try to remind your friend of the loan and look for solutions together.
2. Make it easy for your friend to repay you
No one really uses checks anymore, and it can be a hassle to get cash. The good news is that there are plenty of easy ways to send money to friends and family.
Mobile pay options like Venmo, Google Wallet, Square Cash, and others let you accept payment quickly and easily. Even PayPal won’t charge a fee if you check the “friends and family” option when sending money.
When my cousin house-sat for me over the summer, she told me she prefers Venmo. To make it easy for me to pay what I owed, I downloaded the app, set up an account, and sent her the money. It only took a few minutes.
When loaning money to friends, find out how they want to repay you, and let them know you accept money through their preferred app.
Or, if your friend can’t afford to pay it all back at once, let them know that you are willing to set up a payment plan with them. You can “refinance” the loan for them, then agree on a set amount to pay each week.
This creates a system where you each know the other’s expectations. And, you can hold your friend accountable each week.
What’s more, some mobile pay apps allow you to set up regular automatic payments so your friend doesn’t even have to think about it each week.
3. Accept payment in kind
Your friend doesn’t have money? Consider accepting payment in kind, rather than in money.
For instance, you could ask your friend to babysit or pet sit for you. Or, maybe your friend can pay for your dinner the next couple of times you eat out.
Perhaps your friend has a skill that you need access to. You could say something like, “Remember that money I lent you a couple months back? Do you think that, instead of paying me in cash, you could design a flyer for me?”
This makes it easier for your friend to pay you back, even if cash isn’t involved.
4. What if your friend still won’t repay you?
Sometimes, loaning money to friends can go south. If your friend refuses to pay you back, you do have a few options at your disposal.
Write off the loan.
Convert the loan into a gift if you’re not going to get it back.
However, this can create a bit of awkwardness if you keep bringing it up to your friend. You’ll need to decide whether you are going to say something about it, or just mentally give up and move on.
Consider walking away.
If you’re concerned that your friend will ask for more money down the road, you can slowly back away from the friendship.
There’s no rule that says you have to stay friends after an unpleasant money exchange. You could, perhaps, instead give up the loan for lost and find new friends to hang out with.
Go to small claims court.
Nothing says “this friendship is over” like taking someone to small claims court.
If you really want to know how to get money back from a friend who won’t pay, check the rules of small claims court in your state.
You will most likely need to present compelling evidence that you and your friend agreed on the loan. Try and see if you have something in writing or via email regarding the loan agreement.
Or, look for evidence that your friend made a partial payment before abandoning the loan entirely.
It’s never pleasant to be in this situation, so you’ll have to decide what’s more important: your friendship or the money. Then, act accordingly.
5. Avoid loaning money to friends
Of course, you can avoid this situation altogether by not loaning money to friends in the first place.
Instead, consider giving them money as a gift, or look for other ways to help. You can buy them groceries or offer them a place to stay for a while until things are more financially stable for your friend.
Another way to get your money back and remain friends is to treat it like a true business transaction. Put it all in writing and have your friend sign a promissory note, complete with repayment terms.
You don’t have to charge your friend interest. But having it down in writing, with copies for you both, makes it clear what sort of transaction this is.
It’s also possible to use an app like AgreeOn. It allows you to track and share bills and commitments. And, you can set up a transaction schedule using this app. That way, you both have it on your phone and it’s easy to see what’s going on.
Venmo also has a similar feature that allows you to ask for money, split costs, and set up agreements.
No matter how you go about loaning money to friends, it’s important to carefully consider your own values and expectations. Consider your friendship and what matters most, then make decisions based on what is best for you and your relationships.
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