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Getting Money Back From Loans to Family

Getting Money Back From Loans to Family
Jason Steele
Jason SteeleUpdated March 9, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Lending money to family or friends can be complicated. On the one hand, you want to help someone close to you who’s going through a difficult time. For instance, maybe you lent money to a friend who lost their job, or to your sibling whose pet needed emergency surgery they couldn’t afford. But now they aren’t repaying the money as promised.If you are wondering how to get someone to pay you back, there are several different methods you can try. Read on for more information on how to ask someone for money that they owe you.

Loaning Money to Family and Friends

If a friend or family member is having difficulty getting approved for a personal loan from a private lender, they may ask if you could lend them the funds they need. But just like there are pros and cons of personal loans, there are also pros and cons of loaning money to family and friends. For the borrower, family loans are easier to get than regular loans, which have loan requirements and often have no interest or low interest rates. For the lender, it might be more awkward. For example, they may want to help the other person out, but worry that they won’t get money back that was loaned. They may find it difficult to say no, however, even if they have concerns. Family loans have the potential to damage relationships, especially if the loan is not repaid or one party feels like the other is trying to take advantage of them. That’s why taking out a personal loan, especially one with favorable personal loan rates and terms, could be an option for borrowers to consider.

What Is a Family Loan?

A family loan is when one family member loans money to another. Although the lending process is typically informal since there is no credit check or approval process as there is with a bank, it’s a good idea to write up a family loan agreement that can serve as a contract. The contract should stipulate the amount being borrowed, the interest rate, if there is one, when the money will be repaid, how the payments will be made, and what happens if the borrower fails to repay the loan.  A family loan agreement might also include whether the borrower is putting up collateral on the loan. Collateralized personal loans are backed by an asset, like a piece of jewelry or electronic equipment, that the lender could take if the loan is not repaid. Recommended: 10 Possible Benefits of Obtaining Personal Loans

5 Tips for Getting Someone to Pay You Back

Even with a loan agreement in place, it may be difficult to get money back that was loaned. If you’re in this situation, here’s how to ask someone for money that they owe you.

Remind Them About the Loan

If you haven’t discussed it recently, it’s possible that your friend or family member simply needs a gentle nudge. If you have a loan agreement with specific repayment terms, remind them that they were supposed to have given you the amount spelled out on the agreement by the date listed. Ask them when you can expect that money to be paid. Being direct, but not combative, could be a good approach when it comes to how to collect a debt from a friend.  

Revise the Repayment Terms

Another idea for how to get someone to pay you back is to give them a little breathing room. If the other person is having trouble coming up with the money, perhaps there are changes to the terms you can both agree to. For instance, maybe they could repay you in smaller loan installments. Talk it through to try to come up with a solution that works for both of you.

Forgive The Debt

If the loan was for a small amount, forgiving the debt could be a solution. Perhaps circumstances have changed for one or both of you since you loaned them the money. Or maybe you value the relationship more than the money. However, think through this option carefully to make sure you are OK with it personally and financially. Can you afford to forgive the loan? Will you resent the other person if you offer debt forgiveness? You don’t want to feel angry or upset about the situation later on.

Offer an Alternative Form of Payment

If your friend or family member can’t repay you in cash, but there is another service they could provide instead, bartering might be a way to even things out. For example, if they’re handy with tools, maybe they could make needed repairs around your house. Other options are to have them babysit your kids, mow your lawn, or watch your dog while you’re on vacation. Think about a skill or chore they could do for you in place of money.

Ask For Something of Value That They Own

If it’s becoming clear the other person may never be able to pay you back, you could suggest that they give you a valuable possession instead. This might be tricky, however, because they could be offended, so you may want to proceed carefully. Be sure to let them have some input. Mention the idea as a possible course of action and then ask what they could give you in exchange that would be worth the amount they borrowed.

When to Consider Legal Action

Taking legal action against a friend or family member for a loan default should generally be your last resort. Suing will likely end or severely damage the relationship. But if you lent the other person a large sum of money and you think there is a chance they could pay it back, legal action may be worth considering. Just know the process could be difficult.  Having evidence, like a written contract, may help your case. If the unpaid loan amount doesn’t exceed $5,000 or $10,000 (the exact limit depends on the state you’re in), you could pursue a legal case in small claims court. Small claims can generally be resolved in one court appearance, and the fees involved are usually a couple hundred dollars. However, if the unpaid loan is higher than the small claims limit in your state, you’ll need to take your case to the traditional court system, which will usually cost you more and take a lot longer. Even if you win the case, you may not get your money back. For instance, if the other person has protected income, like Social Security, their wages can’t be garnished. Recommended: Need to Borrow Money? 9 Ways to Consider

The Takeaway

If you lent money to a friend or family member and you’re having trouble getting them to repay you, there are a few strategies you could try. First, remind them about the loan repayment and ask when they will be able to give you what you’re owed. Consider giving them more time to make the payments, if that might help. Or suggest a bartering situation. And in the future, if you lend money to a relative or friend, draw up a loan agreement in advance so all parties understand the terms.  You may even decide that a family loan isn’t the right solution. In that case, a personal loan could be an option that makes more sense. Lantern can help you through the application process. In our online marketplace, you can get offers from multiple lenders all at once to make it easy to compare the top personal loans you may qualify for.

Frequently Asked Questions

How can I get my money back from a friend legally?
What to do if a family member doesn't pay you back?
Do you legally have to pay someone back?
Photo credit: iStock/eyecrave productions

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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