How to Lend Money to a Friend (Without Ruining the Relationship)

Lending money can be seen as a genuine gesture which can easily turn sour. Depending if the loan is repaid or not, lending money to friends or family can make or break a friendship. Many people recommend avoiding the process entirely—but then again, you never know when you may be on the other end of the spectrum, and when a friend is in need, you want to reach out and help them the best way you can.

If you've decided you want to go through with it, you can make sure the friendship doesn't go south by following these simple tips.

Set Up an Agreement

Make sure that a contract or I.O.U. is drawn up prior to lending the money. This way you can keep a paper trail of what amount is being lent, repayment schedules, stipulations and interest accruing.

Every time a payment is made, keep track either on the back of the agreement and make sure both parties have the exact information when making payments.

Consider Gifting the Money

Depending on the amount, consider giving the money as a gift. After all, this could be seen as a gesture of good will and your friend will be very appreciative. A onetime gift is okay, as long as you're not struggling as a result of it.

Give Friendly Reminders

It's okay to frequently remind your friend that they owe you money. If the amount of money was substantial and they haven't begun making any payments, you may want to ask them more frequently. Be polite, you don't want to ruin the friendship by nagging them.

If the repayment schedule is over an extended period of time, let's say one a month for a year and they've been consistently been paying, there may not be a need to remind them.

Bring In a Third Party

You can choose the option of bringing in a neutral third party agency that can draw up an agreement for you and collect the funds on your behalf. This leaves out the task of asking for the money and acting as a collector. The company can set up an ACH direct debit from the lender's account and deposit it directly into your bank.

Don't Expect to be Repaid

Being that you can't predict what will happen in the future, you should always keep in mind that you may not get your money back. You may have to take a loss if your friend is reluctant or cannot pay you back. Just take it as a lesson learned.

If the amount was large enough, you can take legal action as a last resort. In this case, you may want to consider additional fees such as court costs and attorney fees. Not only that, your friendship will most likely be in jeopardy.

If Things Go Wrong: Don't Lend Additional Funds

Under no circumstances should you loan any additional money until the entire amount of the initial loan is paid off, period.

Follow these tips and you might be able to help out a friend without risking your relationship.