Lending a friend or family member money can often put you in a tricky situation. When it’s time for repayment, things can get awkward and friendships can even be ruined if things are handled poorly. I’ve definitely been burned before, and each time it happens, I notice that it was a combination of things that went awry. In every instance, though it would be easy to just blame the person who borrowed money, I also could have done things to alleviate the situation. It often depends on what you’re lending for, but regardless of the sum, details can get muddled very quickly. Obviously, there’s a huge difference between lending a family member $10,000 and lending a friend money for a cab ride home. But either way, you shouldn’t feel guilty for expecting to get paid back.
All that to say, here are five crucial tips for lending people money:
1. Give only what you can afford
When it comes to helping out a friend, we want to do whatever we can. Unfortunately if that friend needs money and you know you can’t give them the full amount they need, you have to just say “no.” If you can’t give them money without putting yourself in the hole, you shouldn’t be lending it in the first place.
If you do have some cash you can spare, without putting yourself in financial danger, make sure you only give what you can afford. Even a small sum can help a friend who is struggling financially. You can make up for not offering the full sum of money by offering to help in other ways, like sharing your groceries with them, or helping them with household chores.
2. Keep a record of it
Make sure you have all the basics written down and filed away. You’ll need the person’s name, date you lent them the money, how much you lent them and a payment plan you’ve decided upon. This way you’ll be able to hold them and yourself accountable for your actions. By keeping a record of the transaction you’ll be less likely to forget how much you lent them and not have to search back in your bank statements to make sure the full amount was paid.
3. Set a definitive “due by” date, when the money will be due (non-negotiably)
I have been in horrible situations where I have lent someone money and long periods of time have passed without them paying me back. When I approached them about paying me back, I was met with frustration since I never said when I needed the money back by. To avoid this awfulness, before you lend them the money, set a date down the line when you expect to have the amount paid in full. Depending on how much you lent, the length of time can vary for your final repayment date. Take time and talk to the person you are lending money to pick a day that you both agree on. This will help you avoid conflict in the future.
If it’s something as innocent as funding their bar tab one night, however, the time line should be much shorter. Now that we’re in the age of Venmo, it’s so simple to just charge a friend for $30 at the bar. If you’re going to do this though, mention it to your friend first. Same with splitting groceries in a roommate situation. Instead of charging them on Venmo, or leaving them a note, calmly mention in person that they owe you X amount by X day. Then follow up with a Venmo charge, just to have a record.
4. Set reminders for yourself
This tip goes hand-in-hand with #3. When you do decide what day you want the full payment to be returned, set a reminder. If you’re lending a small sum, this will just be a quick check-in with yourself to make sure you followed up on the payment and got your $30 back. If you’re lending a large sum, sit down with the person you’re lending to and pick days to set reminders. This saves you from having an awkward conversation every time you’re supposed to remind them of the final due date. If they’re with you when you set these reminders, it won’t seem so passive aggressive.
5. Create a payment plan (for larger sums)
If you have the means to lend out larger sums of money (for rent, etc.) and you already know that the person you are lending it to can’t pay it all back as a lump sum, I would suggest creating a payment plan. Talk with the person you’re lending the money to and figure out how much they can afford to pay you back (incrementally) until the debt is paid in full. They should be playing close to the maximum that they can afford each month, but you don’t want to give them a payment plan that’s overly taxing to them. Create an environment of open communication, and figure out what’s best for both of you. Don’t skip saying something that you’ll regret not bringing up later.