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Lending money to family and friends is usually a complicated situation and one that most people try to avoid at all costs.  What? You mean you’ve already lent it? In that case, collecting on that loan really comes down to the type of relationship you have with the person and how serious you are about getting your money back.  Keep in mind, not all cases of lending money to family members go sour. In fact, you probably have plenty of examples of when they’ve turned up rosy. As with all relationships, it really comes down to communication and compromise. In most instances of family loans, you’re going to need a lot of both.

The best way to do this is to refer to a written agreement for the terms of the loan. You should have established these terms back when you were asking yourself whether or not you should loan money to your family or friend in the first place.  The contract, for lack of a better word, should cover issues like payment schedules, loan interest, debt settlement and so on. If you have one in place, you have a structured plan to fall back on. If you didn’t figure out the terms before, things could get a little more problematic.

Family and Money

Not all family dynamics and friendships are the same, so you can’t take the same approach with everyone. Yet there are a few universal steps to collecting on debt owed to you from your kin. Like all things involving money, cooler heads usually prevail, so keep your emotions in check.

  1. Communicate: If you have concerns whether your family or friend isn’t as focused on repaying the loan as they should be, talk to them. Bring up the reasons why their actions are making you feel uneasy, but don’t make personal attacks. You shouldn’t feel uncomfortable approaching the subject considering the fact that you felt close enough to this person to trust them with a loan in the first place.
  2. Be Reasonably Flexible: You need to remember this isn’t just a borrower who owes you a debt. This is a person with whom you share a personal relationship. The primary reason for the loan was to help them out of a tough spot, a situation they may still be dealing with. You need to be flexible and adjust your payment expectations while they get back on their feet. It’s okay to settle for a sign of good faith in lieu of a check for the time being if you don’t have an urgent need for the money.
  3. Stay Composed: Money does funny things to the mind. It makes people say hurtful things they don’t mean and can magnify certain strains within a relationship. Don’t fly off the handle, even if your natural instincts encourage you otherwise–that’s the best way to lose your money and a relationship.
  4. Seek Legal Recourse: The worst case scenario is when things go bad and you need to take legal steps in getting your money or some type of collateral back in return. If you had a written agreement in place, this may be easier to enforce. If you didn’t, you may not have a leg to stand on unless you have documents showing a transfer of funds and decide to take the case to small claims court. This is obviously the last resort.

Help You Help Them

Ironically, you’re actually in better shape if the borrower is still trying to figure out their finances. This means they’re still putting in the effort and plan to pay you back when they can. If, on the other hand, they’re spending freely and irresponsibly, chances are paying you back is not really a priority.  In that case, it may be time for a little tough love. This is important not only because they aren’t paying you back, but they’re also engaging in a lifestyle that forced them to have to borrow money in the first place.

Collecting Money from Family and Friends

Use a firmer approach to establish an understanding between you and your family member or friend. This will help them grasp the gravity of the loan repayment. If they’re taking your generosity for granted, it’s a betrayal of your trust and your relationship. The fact of the matter is that you helped them out of a tough situation, but now they’re putting you in one.  Unfortunately, as with all loans, you have to accept the fact that you might not ever get the money back. At that point, you’ll just have to chalk it up to a lesson learned. The only thing to do then is decide whether or not you want to maintain the relationship, because at that point, it’s not just about the money anymore.

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Article comments

Shimmer says:

some people have actually tried to blackmail others to repay a very small loan–Im talking 160 bucks. who was it who once said, “Never a borrower or lender be” ? good advice!

DR says:

Shimmer, that’s good advice, indeed! Particularly with family, money can be a big issue. We’ve always had a simple rule–family is always more important than money.

Jenny says:

What if initially, the payor VERBALLY said the money could be paid back at later date and then after family argument (over something unrelated to the loan) the payor demands the money be paid back immediately?