“Never lend to a friend,” goes the famous saying, “since you lose both the loan and the friend.” This may be an extreme position to hold, and we must help our friends whenever needed. But what if the friend has relied on your generosity and is now unwilling to repay your debt?
Broaching the matter of money with friends is difficult. If the friend is hesitant in repaying you, it will strain your relationship with him/her. As you bring up the subject of repayment with your friend, you must exercise restraint and not jump to hasty conclusions.
Here is a step-by-step guide for you to follow as you try to recover your loan from your friend.
Understand The Delay
You must speak to your friend and understand what’s causing the delay. Make sure your friend isn’t going through a problem, especially a financial problem, which might make it difficult for him/her to repay you. You may probe your friend to ascertain the nature of the problem, if any. But you must do so without being too intrusive. Once you’ve understood the situation, you may allow your friend some more time to repay you.
Reveal Your Urgency
Now you’ve given your friend the time he/she needed. He/she still hasn’t repaid you. Now, you must impress upon your friend that your money needs are urgent. Instead of having this talk on the phone or internet, you may want to visit your friend and have a face-to-face talk. Any documents that reveal your urgency should help. You must explain to your friend how a delay in repayment will cause you financial trouble.
Give Options
You’ve laid your situation threadbare before your friend. You’ve told him/her that you need the money soon. If your friend’s still unsure how to repay you, you must work out a repayment plan. For example, you may give your friend a timeline, allowing him/her to repay you in monthly installments. You could ask him/her to give you post-dated cheques or sell some assets to repay you. You may even ask your friend to repay you through a barter.
Involve Family & Friends
The next level of escalation is involving your social circle. Be aware that this step should be taken only if your need for the money is extreme. Taking this step is likely to strain your friendship. You may involve common friends or family members in manner that helps expedite your repayment. You may share relevant details such as proof of lending with these people to align them to your cause. You must also maintain communication with your friend—both direct, and indirect through your common friends—to help him/her understand that you aren’t writing off the loan just yet.
Consider Legal Options
This should be your very last option. If you take it, you’re going to lose your friendship. You’ve now escalated the problem to its logical extreme, and there’s no turning back. If going to court is your ultimate option, you should start accumulating evidence—paper trail, recorded messages, agreement, witnesses, etc.—to help build your case. Remember that this option is not just going to cost you your friendship, it’s also going to cost you money to fund the legal process. Not to mention, it could also take months or years before the courts rule in your favour.
To avoid going through these troubles, you may want to take extra care when you bring money into a friendship. For starters, do not lend in cash. You may establish a paper trail by lending through a cheque, in the presence of witnesses (ideally, friends or family members), and you may also have a registered agreement mentioning the terms of the lending (such as repayment timeline and interest rate). As an additional safety measure, you may want to have a collateral against your loan that you will return once repaid.
Finally, when all else fails, ask yourself if the strain you’re about to put your friendship through is worth the money you may or may not recover.
(The writer is CEO, BankBazaar.com)