How to Loan Money to Friends and Not Lose Out

A close friend of mine has gotten into the habit of asking me to lend her money. The first time, she was in a tight spot and I bent over backwards to help her out. She didn't pay me back, and I didn't ask about the money, because I knew she still had other outstanding debts. But then she asked me to borrow more money to help her out with a business venture, and she promised to pay me back. Well, she hasn't repaid me, and she has been on holiday in the Caribbean twice since that. I don't want to lose her friendship, but I need to find a way to tell her that I don't like the way she treats me. I'm not a rich person at all, but I help my friends when I think they genuinely need it. What can I do? --N

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Dear N:

Forgive me, but she doesn't sound like much of a friend to me. She finds money for vacations, right? I'm sure she pays her rent, right? And she pays her phone and grocery bills, goes to the movies, and so on, right? Why is it that she can find the money to pay all her other creditors and enjoy herself but can't pay you back? It doesn't sound as if your financial security is on her mind. In short, it's bad manners and bad business to borrow and not repay. And it's certainly not the way to maintain a close friendship. I can see why she doesn't want to lose you as a friend, but I'm unclear as to what she is doing for you. I urge you to give this some thought.

To save your friendship and your peace of mind, you need to ask for your money back. Be firm and clear. Her financial problems are hers to manage and deal with, not yours. Don't forget, it wasn't a one-time thing with her. It's part of her consistent behavior. You bailing her out will only ensure that you both have financial problems.

As always, clear communication is the key to most relationship glitches. Agreements between friends should be respected as though they were bank loans. In the future, if you lend money to friends again, be clear about exactly when and how the loan needs to be repaid.

I borrowed money once from my best friend. She couldn't have been more gracious about it, as well as businesslike. She asked me to write her a note stating the terms of the loan. "That way, we won't have any misunderstandings and our friendship will remain intact," she said. At first, I was a bit put off by this. As time went on, though, I saw the wisdom in it.

You could have saved yourself a lot of angst by asking your friend to write you a note. It needn't be stiff and full of legalese to be binding. It might sound like this: "Dear So-and-So, Thank you for lending me the five hundred dollars. I will begin paying you back fifty dollars a month, on the first of the month, starting in April 2000." There is something about putting intentions and commitments between friends into writing that protects our own self-respect as well as our friends'. Otherwise, the money becomes the elephant in the living room that nobody wants to talk about.

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