When You Can't Pay Back Money Borrowed From a Friend


The Balance / Julie Bang

Borrowing money from a friend or family member is risky business. Once you've borrowed money from a loved one, it can change the dynamics and power balance in the relationship.

People have different attitudes about money, and while one person may be forgiving when you can’t repay them, another may hound you until you pay up. If you’ve borrowed money and find that you can’t pay it back, it's important to preserve your relationship until you’re able to repay your debt.

Though you may feel the financial strain or even embarrassment of not being able to pay back what you've borrowed, your friend has a side too. Being empathetic towards the friend you've borrowed money from can help you decide the best way to handle the situation.

Don’t Avoid Them

One of the worst things you can do when you owe someone money is to avoid that person, especially when you’d typically call them or see them often. Both of you know you still owe the money and not speaking about it makes your loved one feel disrespected. It puts additional strain on your relationship and makes the fact that you haven’t paid them back worse.

Don’t Take Your Relationship for Granted

Shakespeare wrote, “Neither borrower nor lender be, for loan oft loses both itself and friend…” In other words, don’t borrow (and don’t loan) money because you’re likely to lose the loaned money and your friend. Don’t assume that because you’ve borrowed from friends or relatives that you can take your time repaying the money. That’s the surest way to lose your relationship over a debt.

Be Upfront About Your Financial Situation

Sometimes it’s tough to talk to friends or relatives about your money, but you have to put these feelings aside and be honest about what’s going on if you want to maintain your relationship. Don’t make excuses and don’t lie. More often than not, your friend can sense that you’re not being completely honest or using excuses to buy more time and that makes your nonpayment even worse. Being open and vulnerable about your finances may cause your friend to be more forgiving about what you're experiencing. If you're having serious financial trouble, come clean, and hope your lender will be merciful.

Negotiate a New Repayment Plan

Let your friend know you’re committed to repaying what you owe and try to work out a new repayment schedule. If you promised to pay it back all at once and you just can’t afford to do that, offer to make installment payments on the debt instead. And if the friend wants the money back sooner than you can repay it, considering offering something in exchange for the debt – electronics you own or services you can provide.

Hold Off on Fancy New Things

If you buy anything new, your lender-friend/relative will probably resent you for it. After all, if you can afford to buy new things, you should be able to repay your debt, right? Your loved one might not come right out and say it, but yes, they do expect you to put off on purchasing those new shoes or that new computer until after you’ve settled your debt with them.

Pay the Debt ASAP

Debts to loved ones are different from debts you owe to banks and other businesses. Banks don’t mind if you take your time paying back your debt, as long as you’re making at least the minimum payment on the debt, because that’s what they’re in business for. In exchange, they'll charge interest on balances that you don't pay back right away.

Your friend is not a bank and likely does not find pleasure in serving as one. Because of their love for you, they can’t take the same measures against nonpayment, e.g. sending debt collectors after you or ruining your credit. Show them the same love and be a better borrow to your friend than you would be for a bank.

Tactfully Deal With the Consequences

Your friend or relative has the right to be upset that you can’t pay them back right away. They don’t have to be lenient with you or forgive your debt. Give them room to feel these emotions, even if you think you’d act differently in that position.

Be apologetic and continue to make efforts to pay the money back. And if you’re dodging your friend, making excuses, spending money frivolously and not paying back your debt, don’t be surprised at all if you lose that relationship for good.

Your friend or relative may not chase you for the debt the way a creditor would, but that doesn’t mean you can skip out on paying it. If you care about the relationship, you should be more dedicated to paying back your loved one than you would be a business or bank.

Frequently Asked Questions (FAQs)

How do you borrow from a 401(k)?

First, contact your 401(k) administrator to confirm you can take out a loan. You may be able to find this information on the website you use to manage your 401(k). You may be able to request the loan through the website and set up your repayment plan. You will need to repay the loan with interest to avoid paying income taxes and an early withdrawal penalty. You can typically borrow up to $50,000.

What is a promissory note?

A promissory note is a written promise to repay someone. If you're lending money to someone, a promissory note serves as evidence of the amount of the loan, the repayment schedule, and the amount of interest that will be charged (if any). This can serve as proof if the borrower doesn't repay the loan and you decide to sue.

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  1. William Shakespeare. "Hamlet," Act 1 Scene 3.

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