I’ve Loaned Money to My Friend and It Is Eating Me Up

I received two emails and comments in the last two days telling basically the same exact story: person lends friend money, friend doesn’t bother ever paying any of it back, person is bothered by this event. Here’s one of the stories:

About three months ago, I loaned one of my best friends a month worth of rent. She didn’t ask me for it but I loaned it to her anyway because she really needed it and I had the money. Since then I have asked her a couple of times about the money and she just says she will pay me back later, but last week we went to the mall and she spent $200 on clothes and didn’t even mention the money she owes me. How do I get it back?

In the past, I’ve suggested that loaning money to family or friends is a bad idea, and this is a perfect example why: it injects some intense feelings into a relationship that may not be able to handle them. Instead of having a relationship of equal friends, you’re introducing an aspect of inequality – lender and borrower. No matter what the terms of the loan, this inequality exists, and that inequality is quite often like sand in your shoes – it slowly irritates over time and leaves you raw.

Here’s my advice for dealing with this situation.

Ask yourself honestly if the money is more important to you than the friendship. Be completely honest about this question – many people will blow it off and believe that obviously friendship is more important. However, this may not actually be the case. Spend some time without that friend’s presence and really think about the state of your friendship right now. Is the borrowed money changing your perspective on that person as a whole? This is an answer that you need to find for yourself – no one can tell you which answer is correct.

If you do decide that the friendship is more important, forget about the money. Just let it be and don’t think about it again – imagine that you gave the money to the friend as a gift. If at some point the friend does pay you back, accept it gladly, but don’t make a big deal out of it. Continually focusing on the loan and raising it as an issue will do nothing but stir things up and won’t be healthy for either one of you, so just drop it and walk away.

If you decide that the friendship is falling apart anyway, be extremely straightforward about wanting your money back. Situations like this are not the time for being coy or telling yourself that there will be another time to bring this up. It’s obviously stressing you out because you’ve reached this point, so just flat-out say that you want your money back. Be reasonable about it, of course, but be persistent. If there is genuine friendship still left after the mistake of loaning money, it will survive this – you need to get the lender-borrower aspect out of the picture as soon as possible.

In either case, don’t loan money to friends ever again. If you feel a need to help out a friend in a financial situation, give that person a one-time gift, make it clear that it’s a one-time thing to help through the pinch, and then just forget about it. You can also help out in non-financial ways – the ways a good friend would help another, like offering a place to sleep and so on.

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  1. Woody says:

    I have two very simple rules on lending money:
    1> Never loan more than you can afford.
    2> Never expect to get the money back.
    2> Never loan again to a person that doesn’t pay you back without asking.

    This makes life easy for me, as I don’t loan money I can’t afford to because of rule #1. Rule #2 removes any stress I have over getting it back. And rule #3 helps me figure out who’s a financially responsible friend and who’s around for the “piggy bank” effect.

    And if someone asks why I won’t loan to them, I tell them this quite directly. On occasion some have gotten pissed over it, mainly those that hit rule #3. For them its pretty hard to argue though, since they’re the ones that didn’t repay the initial debt.

    I also have rules about borrowing money:
    1> Never borrow when you don’t need to.
    2> Never let a debt go unpaid.
    3> Always repay more than what you borrowed.

    As you can see, they line up pretty well with the first set. Most times #3 takes care of itself, since the only things I tend to borrow for are large items, and banks charge interest. ;)

  2. Tim says:

    the example used had one glaring problem: she didn’t ask for the loan, yet the friend gave the money. if i had been the recipient, i wouldn’t have thought of it as a loan at all.

    i borrowed money from a friend of mine, and i’ve given money. there are people you can do this, others you cannot. i’ve given money to my brother, b/c i know that he wouldn’t ever be able to pay me back if i loaned him the money.

  3. slc says:

    “You can also help out in non-financial ways – the ways a good friend would help another, like offering a place to sleep and so on.”

    This is a dangerous prospect as well. I know far too many people who let someone “crash at their house for a night or two” and were stuck with a non-paying roommate months later.

    For any “favor” (cash, time, or otherwise) you need to evaluate how much the friend or relative is “worth” to you, have a clear understanding of expectations, and know when you will put your foot down and say no (or no more).

  4. alex says:

    This is indeed a difficult dilemma. I recently needed my friends to chip in their share of a shared cost, so what I am doing is: giving people an prompt payment discount. If they pay before a certain date, they save 20%, I’m hoping this means I won’t have to nag them for money. The other good thing about a prompt (or early) payment discount is that it allows you to justify charging a late fee, b/c its their own fault that they didn’t take you up on it, when you were willing to eat 20% of the money they owed.

  5. 60 in 3 says:

    Never do a friend a favor and expect to be repaid for it. If you’re expecting payment back then that person is not really a friend, they’re a business partner. Which means, don’t give anything to a friend that you’ll be upset over if they don’t give it back. Think of it as a gift and be happy if they do give it back to you at some later point.

    And if your friend spent money on clothes rather than paying you back, then maybe they don’t value the friendship as much as you do. What does that say about your friend and your friendship?

    Gal

  6. jake says:

    I agree with what some people have said. This might be viewed by the friend who received the money as a gift.

    There might be some big assumptions that were not cleared early on. Like for example because they were best friends, the person accepting the money assume it was just to help her out in a tough situation. The person giving the money assumed it was merely to lend a helping hand, and assumed it will be paid back because they were friends she didn’t need to talk about it being a loan. Which of course is where the problem lies, both sides most likely never seriously talked about it as a loan.

    A friend and I went out to dinner, and we ended up ordering more then we should so in the end the bill was huge. My friend only had cash in hand, but still he did not have enough, so I said “dont worry I’ll pay for it, you can get me back later.” Well a few weeks later we got into a little argument about the dinner, and I found out that he thought I meant he can buy me dinner next time. I let it go because technically the way I said it he was right.

  7. Kevin says:

    There have published medical studies that prove without question that borrowing money is a direct cause of amnesia

  8. Kevin Blake says:

    If I “loan” money it is always to friends or family that mean a lot to me, or my wife. And I never expect it back. In fact, when they have tried to pay me back I refuse it. I explain to them that I would rather they help out some one else.
    For me it makes me feel good to help out the people I love if they need it. And after they have gone through the often humiliating process of asking for or simply accepting a “loan,” I feel they need the opportunity to feel good about helping out someone else.

    “I dreamed that stone by stone I reared a sacred fane, a temple, neither pagoda, mosque, nor church, but loftier, simpler, always open to every breath from heaven, and Truth and Peace and Love and Justice came and dwelt therein.
    —Tennyson

  9. plonkee says:

    I also think that just because you lend a friend money, you don’t get the right to a say in how they spend money. Because you never get the right to say how your friends spend money – if you think you should you’re treating this more like a business relationship (and that may be appropriate).

  10. Mohammed UK says:

    My situation is slightly different. I loaned some money to a senior person working for a charity with which I am involved. He made it clear that he would pay me back within a month at the time of taking the loan.

    After about six months, he hadn’t repaid, so I approached him and he promised to pay. Thereafter, I moved abroad. So, I have virtually lost contact with him, except for vacations when I see him briefly and only have a chance to exchange pleasantries.

    In the end, I wrote a couple of letters to him and had no response. I could do with the money as it would help clear some of my own loans.

    I tend to make excuses for him, as he is very busy, particularly working for good causes. So, I almost feel guilty that I want to “take” from such a philanthropist.

    I hope to see him over the summer and will make another attempt. I get the feeling that I will end up considering it as a gift even though I don’t really want to.

    Since this is a little more like a business relationship, I may consider making a deal with him, for example, to pay a portion now and the remainder later, or to pay the bulk of it back and forgo the rest.

  11. Jenners says:

    Woody’s post pretty much summarizes my personal philosophy, and Tim made a good point in mentioning that the loan was never asked for.

    I live in West Africa, where people live in a perpetual state of debt. Everyone is either a debtor or a lender, and most people are both. It took a lot of years and a very good book called “African Friends & Money Matters” for me to understand how differently things work here.

    Anyway, as “rich” expatriates, DH & I get asked for loans all the time. And we’ve lost a lot of friends by giving the loan, b/c then the person is ashamed not to pay it back (strong shame culture here, obviously not a problem with the person who wrote to Trent), and stops coming around. So we have worked out a way to deal with such requests:
    a) Never give more than half of what is requested (and often less), b/c people usually have other “resources” (e.g., a network of friends & relatives).
    b) Give it as a gift and not a loan. We kiss it goodbye as soon as it leaves our hands, so there are no hard feelings or embarrassment. Occasionally someone surprises us by bringing a repayment. We either accept it graciously, and save it for the next borrower, or remind them that the initial loan was actually a gift and let them keep it.
    c) Wherever possible, give in kind rather than in cash. I buy a lot of things in bulk so that I can go to my pantry and pull together enuf for someone to cook a couple meals for their family. In the USA, maybe you could buy them a bag of groceries or something.

    I don’t know how practical these ideas would be in the USA, but HTH.

  12. martha in mobile says:

    Interesting post and interesting responses! I like how Woody has codified values into personal rules that make actions very clear; Jenners gives a fascinating insight into a different culture. All I can add is — you can write off bad debts on your taxes (or at least you could back when my ex-husband asked me for a “loan”).

  13. I make a rule never to loan a friend any amount over $20 unless the situation is dire. Less than ten dollars, if they don’t pay it back, it’s no big deal. You can just get on with you life and the friendship’s fine. Anything more and both parties feel an obligation.

    My wife let me borrow money when we first started dating for rent. I use to be in financial shambles. I felt I owed her so much and the debt was never going to be repaid. I ended up just giving up and marrying her.

  14. TK says:

    @woody — good plan.

    Personally, I never lend anyone money. If someone has a good reason for needing some help, I just give it to them if I can spare it and they’re worthy. If I ever get it back, that’s a bonus.

    But, because I never lend, I only give, it never ruins a friendship, or comes between me and my sister, or anything.

  15. Vince says:

    My wife and I have loaned in the past. We got burned once by a situation where it turned out the father was addicted to gambling. The mother didn’t even know about the loan! (They are since divorced). We did some soul searching and realized we were upset about something that we could afford to ‘lose’ . So now, no loans, just gifts. Sort of the rules like Woody said in the first comment. I have also taken this lesson to my kids. If they loan ANYTHING out they need to be able to handle the fact it may not come back.

  16. Gigi B says:

    My husband and I never loan, we give. We had a friend ask to borrow $500. We normally don’t have that much, but we happened to at the time. We informed her that it was NOT a loan, it was a gift…she cried. We were very surprised when she gave us a gift of $600. over a year later. We “gave” some money to my brother-in-law who said repeatedly that he would repay, but 5 years later he hasn’t…we don’t care because we again considered it a gift, but every once-in-a-while he will still mention that he will repay us. We keep telling him to forget it, and just laugh it off. So in a nutshell…we don’t loan, we gift. Never loan out more than you can afford to lose.

  17. Kathy says:

    How good of a friendship could it be if the other person is willing to take advantage of you, make empty promises, and flaunt money in front of you when she knows full well she owes it to you?

    Is it just me, but should some of that be taken into account when you are trying to decide if the friendship is “worth saving”?

  18. Amanda says:

    I know from experience that some “friends” – no matter how honorable they claim to be, will never repay a loan. The situation is partially my fault. I realized a couple of months into this that he would never repay me, and I loaned him more money anyway. You know what they say about “fool me twice…”

    Now, I neither loan nor give money. Loans are never repaid (Shakespeare said that “loan oft loses both itself and friend”) and gifts are just absolutely out of the question. I find that this is the best course of action to take.

    By the way, this “friend” keeps saying he’ll repay me every time I talk to him. I’ve stopped talking to him since because I’m tired of the lying. If you don’t want to lose your friends, don’t lend them money.

  19. Craig says:

    I have to go with Shakespeare on this as well. The full quote (from Hamlet):

    Neither a borrower nor a lender be;
    For loan oft loses both itself and friend,
    And borrowing dulls the edge of husbandry.

    (You can substitute “stewardship” for “husbandry” if that makes it easier to understand.)

  20. nick says:

    I lent my father in law $10,000 which he said he would pay back in 4 weeks – that was in December 2006 and I still havent had a single cent back – can anybody offer any advice on this – My wife and I are rowing over this daily as this makes up about 1/5 of my annual income! – he avoids me now and has not mentioned it once – any ideas about how I approach the subject with him?

    ta

  21. Max says:

    I lent $3000 to my co-worker and consider him a friend for his wedding in 2002. First I lent him $2000 and week later he said he still short of $1000. I save my bi-weekly pay check and let him borrowed it. ‘Til now 2007 he has not paid me a penny and everytime I mention about it, he said a prayer on the phone and added “The Lord will pay you back.” Since he is a pastor. He’s been hiding from me and stop responding to my emails and phone calls. I don’t want to make it worse or take it down to the court or church.

    What should I do? We expected a baby this christmas and I don’t make lot of money. I was as poor as he was and willing to lend him and he said will pay me back in few months. Help!!!

  22. Adam says:

    My wife and I have made a commitment to never loan money. Rather, we make it a point to have the resources to give whenever someone we know is in need.

    We maintain 2 criteria-
    1. It has to be accepted as a gift. If their pride won’t let them accept a gift, we can’t help them.
    2. They have to promise not to tell. Other than the people we have helped, no one knows we do this and we like to keep it that way.

    We’ve been able to help a handful of individuals in significant ways without anyone making a big deal about it.

  23. Nicole says:

    This is a good life lesson for the individual who loaned the money. My feeling is that there are two types of loans you make to friends/family. The first type of loan benefits both sides. These loans are memorialized in writing, they have a modest interest rate, they are supported by a promissory note, they have a specific monthly payment schedule. Their purpose is to enable the borrower to make an important purchase at a better interest rate that they would get from the bank and to allow the lender to realize some gain on the investment. E.g., my parents loaned me the money to pay off my private student loans. I paid them back over a 5 year period at a 3.5% interest rate. At that time they could not get more than 1% from their savings account and the interest rate on my private loan was almost 8%. These types of arrangements benefit both parties.

    The second type of loan is when your friend/family member is in a financial crisis and needs the money to make avoid some financial problem/disaster. The other word for this type of loan is charity. If you make this type of loan, you should be able to sleep comfortably for the rest of your life even if you never see that money again.

    I don’t think the borrower in this situation was in either of those positions. Missing the rent for one month can be an important life lesson itself. Contrary to what the lender says, he didn’t actually “have the money” to loan his friend. He loaned more money than he could afford to lose and he didn’t take precautions to protect his “investment.”

  24. Nicole says:

    Nick – I think you need to come up with a compromise solution that will resolve the issue for you and bring peace back into your family life. You need to convince your wife to back you up on your compromise and get her to commit not to wavering from it.

    The put your compromise in writing and have meeting with your FIL and wife to go over it. It should be favorable and kind enough to your FIL that your wife and your FIL will see that you are being more than fair.

    For example, offer your FIL a generous discount on the original loan – say 25%. Then come up with a suggested payment plan that breaks down the loan into the manageable monthly payments. E.g. if he pays 7500 it over 10 years, that’s $62.50 a month.

    To make it even more favorable, assuming you have kids, set up a savings account for the kids and have him pay the amounts directly into the savings accounts. Then, he is not only paying back his debt, but he is helping his grandkids build towards a great financial future. In order to get these favorable terms, he must agree to do the following – set up monthly automatic payments from his account to the savings account, sign a promissory note for the full amount $10,000, agree in writing that if he defaults on the payments for more than three months, he will go back to owing the full amount, take out a life insurance policy in your name (not your wife’s) for the amount of the original loan.

    Again, all of these terms should be written down and signed by you and your FIL.

    other options:

    1. let it go – treat it like a gift – stop fighting with your wife over it.

    2. divorce

  25. Marcy says:

    I’ve been burt by so called friends way too many times, looks like this is a common problem. I’ve come to find that loaning is an abuse of friendship. There was one time when I borrowed money from a friend’s mom, I needed a car and I was in quite a bind, waiting for my tax return. But I paid her back right away. I feel it is the right thing to do. But so many people think they can get away with it. I can’t respect that mentality. Kathy took the words out of my mouth, there are some obvious problems and the best thing to do is write the friendship off as a loss. I’ve had to do this, it’s too bad. Now I try not to let anyone know my financial situation or talk about things I’ve bought. I think there are a lot of people out there that target others. I have a friend who wanted to borrow $80 to pay her cell phone bill that got ‘shut off’ but she was using her phone. I offered to pay the bill for her but she didn’t want anything to do with that. We don’t talk anymore and I guess that’s just as well. I could see a lot of problems with what she spent on (ipod and all the accessories, 3 packs of smokes a day, booze and other such luxuries). Her kids werent being taken care of, she probably just needed to nurture her habits.

  26. Bill says:

    After reading all the posts, I don’t feel so bad now. I am currently in a situation where my wife and I loaned her brother and sister-in-law $7000.
    They both have good jobs and make decent money.
    This is they way it happened: about seven weeks ago they called in a panic, they were in the middle of re-financing their home and for some reason or the other, they needed the $7000 quickly wired to their old lender so escrow would close on the new loan (I always thought all money owed anyone connected to property was paid when escrow closed, even back payments) anyway, we wired the money to their old lender next day. My in-laws said the loan would be for 2 weeks max and they would pay us back 8K then, which I told them not to, just the original amount would be fine and we were glad we could help. About a month into the loan, nothing was said, when I asked how the escrow was going I got a lot of excuses, saying the appraiser messed up, has to get better comps, or the rate offered wasn’t what they promised, etc. Finally after week 7, I emailed my in-laws and explained to them the money we lent them is basically our do it yourself impound account. Our real estate insurance, homeowners insurance, life and auto insurance are all due soon and we will need the money back to pay all that soon. I told them we will need it no later then Nov.12th. They said no problem, they will wire it to our account by the 10th. I wish I would have read Woodys rules before they called, there would have been no loan made. I am a bit dissappointed in my wife, because we made the decision to loan them the money together, yet she has left it up to me to ask for it back even though it is her brother we lent it to, close to Nicks situation. Actuall we do have enough resources to pay our taxes and insurance still, but it will really deplete our emergency fund not to mention all the lost interest on the money. I will let everyone know if they do indeed pay us back or not by the 12th. I am sorry this post is so long, but maybe it will help someone in the future here ? hopefully so. One question, because the loan went two months instead of two weeks, would it be appropriate to accept more than the original amount for pain and suffering ? JUST KIDDING !! I will be happy with just the loan amount IF it comes back.

  27. LC says:

    If you ignore this advice and still loan money and expect to be repaid, get it in writing no matter how much of a friend they are. That way you have some legal basis for getting it back from them eventually. But I definitely don’t think it’s a good solution unless it is viewed as a gift.

  28. Marcia says:

    Here’s what you do:

    If ever a friend or family member comes to you for a loan, tell them, “Absolutely! Since you’re a [friend/family member], I’m glad to give you favorable rates, and I’ll even give you six months to pay me back. Let’s make an appointment with my attorney to get your information for a credit check. Once you clear that, we can draw up the loan contract.” (gets out calendar). “So, when are you available?”

    If a friend or family member comes to you for a loan, it’s because they are trying to avoid the requirements–interest, or (in the case of some people) actual repayment–they would face if they borrowed from a bank or other lending business. If you make it clear from the get-go that you will treat that loan EXACTLY the way those lending businesses would, they’ll back off.

    If they get huffy about it, explain that as (friends/family members) you would hope that they would appreciate the steps you’re taking to protect both your rights as a lender and theirs as borrowers, especially since they’re asking to borrow a sizable amount of money.

  29. Bill says:

    LC and Marica both have great advice, I wish I would have thought of it myself when I was asked to loan the money. Well, I didn’t get paid back by the 12th of Nov. as expected. It seems their home re-fi was approved, but their broker could not find funding :( I called them and we have agreed on a 2 year payment deal at 11% interest with the first payment due on Dec1st about $314 a month. If they should want to pay off the balance they owe me at anytime great, but until that happens, we are going on the payment system. As it turns out, I have a reason to be at their house for a family function on the 1st, so we shall see if they come up with payment one, also I sent them a promissary note to sign and I will get that too on the 1st if all goes well. Let you guys know what happens.

  30. ShameLender says:

    I shamefully admit. I gave a loan to a trouble making friend of my other half. I was secretly hoping that it wouldn’t be repaid, and it would cause the relationship to dry up. It worked far better than I had hoped.

    Sometimes an unpaid loan is a very cheap way to get rid of someone that needs to go.

  31. Jan says:

    I lent a friend $15,000 which he promised to pay back $18,000. Time came to pay and he asked for an extension. Extension time came and went, said he would pay $2000 next month, $2000 month after that then the final. We’ll see. But big lesson learned. When you lend money you are putting the other person in control of how you feel about that money. Never again. It is just plain disrespect.
    Leverage will be the key to getting it back though. He has invested a lot into his image in the community. If he doesn’t pay this time I will give an ultimatum: “Pay in 10 days are I will start to post signs at every street corner that you defrauded a person and your picture with it.” It is a fact and cannot be construed as slander. Sure he can sue, but it would be cheaper to pay me than a lawyer and a quicker way of having the signs disappear. The signs will show up at his prestigious place of business as well. How much pressure do you think his boss will put on him to ‘take care of this matter immediately’ or be fired?
    This was more of a business deal than friendship.
    I won’t feel guilty about ruining him either. I just consider it assertiveness. He came up with the terms, not me, he came to me and gave me the expectations on repayment, not me.

  32. Queen says:

    I loaned my stepbrother money to secure a bank loan, which was to be paid back as soon as the bank released the money conquerble to what he ahd in teh bank. Each year he had another story, the bank was not releasing the money, then the money was released, and now he has leins on his property. Meanwhile, he and his wife have traved on exotic vacations to Jamacia, and several cruises. I told him I needed the money back for my college education. I am now soon to be without a job and cannot get he money back. I really need to have the money back

  33. candy says:

    I loaned my sister 2740.00 to pay her rent because she had just had a baby and her deadbeat children’s father had left her and her 4 kids and no way to pay the rent. I took a CHANCE and loaned her that money with a promise to pay when she received her income tax back in 06 and she has yet to pay anything and here it is now 08 and she always has some excuse about why she couldn’t pay me back yet. I did find out that she has been giving her money to some man that told her he loved her. I’d love her dumb a@# too if I knew I could get money from her like that. He’s not even doing anything for her. That pisses me off. My husband is mad at me for loaning her the money and now I’m taking her to court to have her wages garnished. This sucks, People suck

  34. Marisa says:

    I had a friend e-mail me saying he was in a bind and needed his cell phone bill paid. I did it when he promised to pay me back that friday. I have never seen the money and the only time he calls me is when he needs something. I stoped giving him rides and such after the cell phone thing and i have not heard from him sence. I was only spare change to him so i have learned to never lend money. EVER!!!!!!

  35. Linda says:

    In the case of money lending there are two kinds of people the users and the used. Not very flattering, but all too often true. Some people do excel at taking advantage of others without feeling a shred of remorse. After having been burned a few times by so called “friends” needing my money, I would tell any would be borrowers that I don’t lend money to anyone because it destroys relationships faster than just about anything. To quote my wise grandma “If you need a loan, go to the bank.”

  36. deRuiter says:

    Dear Nick 20 and Max 21. Sit down, type note giving the perps 10 day from date of letter to repay loan. Mention terms of loan, dates, check number in the letter. Be blunt and say if loan is not repaid in ten days you will file in court and put lien on their property or garnish wages. Be polite and firm. THEN DO IT. If these people had any positive feeling for you they would not cheat you out of your money. This way you feel bad, they don’t and they have your cash. Stop being the victim. Candy 33, congratulations on finally being businesslike about your getting screwed, all is not lost if you can garnish her wages.

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