It's disheartening to learn that a loan you gave to a friend is not being repaid in the agreed upon time and terms. The loaner feels cheated and used and then starts to make assumptions on the borrowers situation. How it's handled will ultimately determine if your relationship survives.
There is nothing more annoying than to know you're owed money and to see the borrower all willy nilly on Facebook flossing their newest purchase. You stare at your Newsfeed with the blank face and feel the most offended, dismissed, and betrayed.
Priorities
In my past, I've always regarded friend loans as more important than commercial bills. When I say you will get all of your money back on this day and time, that's exactly what happens. If I have to pay my cable bill late to pay back a friend that trusted me, that's what just has to happen.
I do not find it unreasonable for the borrower to let go of a luxury to pay back a friend. Absolutely not. It's a big deal for someone to come off of their hard earned money to help out a friend. Keep in mind, they did not have to help in the first place. The loaner trusts this loan will be used to help their situation and trusts the friend's word that they will be paid back.
Keep your cool
Feelings of resentment may arise quickly over situations like this. But, you may not know if the borrower is still in a financial rut. Keep in touch with them, even if you feel them pulling back from you out of shame or guilt. Let them know you still care about their situation. Don't come at them as if you're a bank bill collector. Although they owe you money, don't feel like you have the right to attack their dignity just because.
Partial payments vs lump sum
Some borrowers feel if they don't have all of the money as agreed, that they'll just wait until they have it all. So, instead of showing hard proof that they're completely committed to paying back a friend by making a payment of what they can, they choose to go get a new hair do, new cell phone, or some other unnecessary purchase. This is a HUGE slap in the face to the loaner.
So, to start your collection efforts off, ask the borrower if they will be able to make a partial earnest payment. Let them know you're willing to take a partial payment if them coming up with the lump sum is too overwhelming. You don't have to pretend you need the money if you don't. Because if you read the first article, you know that you shouldn't be loaning out money you'll need in the first place.
Forgiving Repayment
Again, don't loan money to people you know who are already financially irresponsible. If you do, just go ahead and consider it a gift because your chances of recouping the money is slim to none.
But, if you find out after the fact that the borrower cannot honor the arrangement, you'll need to make a decision. Do you want to exhaust the energy to collect this money that will more than likely end the relationship? Or is the friendship more important than the principle?
If you choose friendship over repayment, here is a great option to settle the matter:
"I understand your circumstance hasn't improved and I value your friendship above anything else. Accept the money as a gift. But, understand if this comes up again, I prefer to not assist you financially so that financial matters do not affect our friendship."
You have now agreed to let go of the matter and move on. Do not ever bring it up again. You're also saying that because you've agreed to forgo payment due to the inability to pay as agreed, you will not allow another transaction to take place that will hinder the relationship.
Collecting Under Hostile Circumstances
If you find yourself dealing with someone who has no intention of paying you back and making that point very clear, you may find yourself in a fight. If you've documented the original loan, and kept track of any partial payments and dates, you may present these items and file a small claims case at your local courthouse.
But, first, attempt to make collection attempts in writing. Text messages and emails are preferable so that they may be kept as proof of attempted collection. Document dates and transactions. For example:
"I'm writing you to follow up on when to expect payment on the loan we initiated on 1/2/2009 for $500. I've only received $100 on 2/5/2009 and we agreed the full amount would be paid by the end of January. Please call or email me so we can make arrangements for repayment."
Be prepared that these actions may not be well received, but documentation is most important if you plan on recouping your money via legal means. Check your local small claims court for more information before proceeding with legal collections.
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