There have been times in my life that I have needed to borrow money from someone and I always pay it back. Most of us do. However, when friends borrow from friends or relatives borrow from relatives, the sheer nature of the relationship lends itself to abuse. Many people feel they can put the money they owe someone they know at the bottom of the list of bills because friends and relatives are supposed to understand when things “come up”.
Instead of treating the money that they have borrowed as a loan, people will automatically assume that they can pay back money at their leisure. Often this translates into not paying the money back at all. There are the usual excuses, such as “I didn’t know you needed the money”, “I was going to pay you back this week but my car broke down” and my personal favourite, the birthday excuse.
It is irrelevant as to whether the person needs the money. When a person borrows money, it must be paid back. If you borrow from a bank, you have to pay it back whether or not their institution needs the money. Cars will always break down and birthdays roll around on the same day every year.
Prevention is better than cure when lending someone money, especially friends or relatives. There should always be something in writing. Even if it is awkward at the beginning, it is much easier to lay out the repayment terms before lending the money. After the money has been spent, it is “out of sight, out of mind”, unless there is something in writing. Relatives, especially, tend to forget that the money was a loan and not a gift.
If a person who has borrowed money from you fails to mention anything about paying you back after the agreed upon date, there is no subtle way to bring up the subject so it is best to come right out and ask if the person has the money available. As difficult and awkward as this may be, it is far better than sitting around resenting the person because he’s gone out and bought a new stereo system for his car before paying you back the money he borrowed. If no date has been set for the loan to be paid back, this is the time to get a firm commitment, and, if need be, put a payment schedule in writing.
There is not a lot you can do if the person does not pay you back. Lending money to friends and relatives is never a good idea unless you are prepared to forgive the loan if it is not paid back. Never lend more than you can afford to lose. It is also a good idea to know why they are borrowing the money and if they have the means to pay it back.
You could take someone to small claims court, only if you have something in writing, but who wants to take the issue that far? If the person does not have the resources to pay back the original loan, a judgement from a court is not going to make that much difference. Lending money to a friend is a recipe for disaster. The same goes for relatives. Be prepared to lose the friendship, or resent the relative, when the money they borrowed from you is not paid back on time, or at all.
Banks are in the business of lending money. People are not. I no longer lend money to anyone, ever. If I am so inclined, I will gift someone the money but lending is out of the question. There is a reason that a bank draws up a contract, and sometime uses something as collateral. This is how it should be. People are not banks. Give the money outright, as a gift, if you want to stay on good terms with your friends and relatives. If you cannot do so, point them in the direction of the bank.
Most of us do pay back the money we borrow from friends, but why take the chance that you will lend money to someone who will not pay it back? You will then be out both the money and the friendship. When it comes to lending money, whether it is to a friend or relative, the word “no” just may save you a great deal of heartache.