There is always a risk in lending money to anyone. However, if you lend money to friends and relatives, especially if they do not pay you back. If this situation occurs you, as the saying goes, ‘placed on the horns of a dilemma.’ What do you do when friends and relatives don’t pay you back?
Technically you have every right to take the necessary legal steps to recover the debt though the legal system. In the UK this means that you can go to the local court and, for a fee, issue a would need to issue a summons through the small claims system for repayment of the debt plus court costs, plus interest from the date repayment was due to the date of the claim. In addition, you are allowed to claim interest at a predetermined percentage from that date until the debt is repaid.
However, there are some technical and personal issues that arise in this situation. From the technical aspect, and if the friend is really intending not to repay the debt, you may need to prove the money was leant in the first place. Unless there is a written agreement between you and the person you loaned the money to this could prove difficult if not impossible to prove. Alternatively, if there was a witness to the transaction you could ask them to confirm that it took place, which of course means potentially asking one friend or relative to give evidence against another.
However, in reality, bearing in mind the emotional connection you have or had with the person you loaned the money too, is it realistic to believe that this is a valid option? Would you risk alienating a relative and possibly more than one if the debtor is part of a family unit that you are close to, by taking legal action? The situation would be even worse if they are living under the same roof as you, which is often the case. It should be noted that an added problem in taking someone who is living with you to court is that it may well affect your credit rating as some lenders take the financial status of all who live in the same house when making credit decisions.
A similar, though perhaps slightly less personal position will arise in the case of a friend owing the debt. One assumes that you would have considered the person to be a close friend before you even thought about lending money. If there is a failure to repay the debt in this situation, the question in this case is just how much do you value the friendship. Unless the debt has already irreparably damaged the friendship, in which case the legal option might still apply, you would need to think seriously about the future without that friendship before taking any action that, once started, cannot easily be stopped. Certainly, once the initial claim has been made your friend would be aware that your intention is to take whatever action is necessary to make them repay you.
The other course of action, or more accurately inaction, is to put it down to experience. Then you should resolve never to afford that friend or relative, or any others come to that, the opportunity to create another hole in your finances again, or to put you in the difficult and often embarrassing situation of having to make a choice whether to risk a friendship to recover a debt.