Forum: money.stackexchange.com
Tags: <credit-score><debt><private-lending>
Title: What should I do when my friend doesn't pay back a loan I gave him?
Question: I lent money to my friend for his wedding through my credit card. It was around $5,000. He said that he would pay me back within 1 month. It has been almost 5 months. Every time on his salary date I remind him of  the amount he owes me. He sends the interest amount though twice he has sent $600 and $750.  My credit score has become worse due to the balance.  I  have whatsapp chat screenshots of lending him money. What should I do now?

Answers:
sents: text: Pay the credit card bill and next time either gift the money or not, but do not lend to friends without sufficient legal documents.
text: How quick can you have the 5K paid off?
answer_details: author: money.stackexchange.com/users/10613/Pete B.
score: 13
sents: text: My credit score has become worst due to his balance.
text: What should I do now?
text: I do have whatsapp chat screenshots of lending him money.
text: First thing you do
text: : Pay off the balance you owe to the credit card.
text: The loan to your friend no matter how the money was actually accessed and transferred should have involved funds that you could live without.
text: Now that the immediate problem of paying off the balance is gone then focus on getting your friend to come up with a realistic payment plan.
text: But keep in mind the loan is going to damage the friendship, it already has.
text: Too much pressure will make your friend angry, or embarrassed.
text: Too little success will make you angry.
text: But what if you can't pay it back now.
text: You need to refocus your financial efforts to get that balance paid off to minimize the damage to your wallet with any fees and interest.
text: The inability to plug this hole in your finances quickly will just make the stress worse.
text: There is common advice to not loan to friends and family but instead gift it.
text: But that advice is only true before you lend the money.
text: Once the debt is created, then any mental switching of the account from loan to gift comes at a very high price in our internal accounting.
text: This is hard to do without damaging the friendship.
answer_details: author: money.stackexchange.com/users/5414/mhoran_psprep
score: 7
sents: text: When your friend simply does not have the money to pay you back, then there is unfortunately not much you can do.
text: When a creditor gives a loan to a debtor, then there is always the risk that the debtor won't be able to pay it back.
text: That's a risk the creditor has to take.
text: This is why companies are so interested in your credit score before they give you a loan or enter any form of "get stuff now, pay later" contract with you.
text: They want to make sure you are a low-risk debtor.
text: Assuming that your friend debtor is actually able to pay you back but refuses, then the correct course of action from a "Personal Finance and Money" point of view would be to sue your friend debtor in a small claims court.
text: If he does not pay you back despite a court order, hire a debt collector.
text: This would fix your financial situation, but that person will likely not be your friend anymore.
text: If you want to solve this problem without ruining your relationship with your friend, then that's a topic for https://interpersonal.stackexchange.com .
answer_details: author: money.stackexchange.com/users/20203/Philipp
score: 4
sents: text: Realistically, you have 3 choices: Accept that you will never get the money back and forget about it.
text: I don't know your financial situation.
text: Maybe this would be difficult or almost impossible for you to do.
text: Badger your friend to pay the money back.
text: Maybe he will
text: and maybe he won't.
text: Either way, the friendship is probably ruined.
text: Take your friend to court.
text: As this appears to be a verbal agreement, it may be difficult to enforce.
text: In principle, a verbal contract is just as binding as a written contract.
text: But the problem with verbal contracts is that it's difficult to establish exactly what was agreed to, or even to prove that there was an agreement at all.
text: Often the terms of the agreement are vague.
text: Did you ever even say when he was expected to pay you back, whether he was supposed to make regular payments or pay in a lump sum, whether there would be interest and if so how much, etc?
text: Your friendship would surely be ruined forever if you did this.
text: If he doesn't have the money, then even if you win, the court can't force him to give you money he doesn't have.
text: You could be chasing him down for years trying to get payment.
text: It may be that you are just stuck with paying $5000 for a painful lesson in personal finance and interpersonal relations.
text: May I suggest that in the future, don't loan money to a friend.
text: If you want to help someone out, just give them whatever you can afford and are willing to give, with no expectation that you will ever see this money again.
text: Choose an amount you can afford to lose.
text: About two years ago my sister asked to borrow $2500 for a business venture.
text: It didn't work out and she lost the money I'd given her as well as the money of her own that she had used.
text: Fortunately, when I gave her the money, I told her that it was a gift and no need to pay me back.
text: It was an amount that at the time I could afford to give away and just not worry about it.
text: I made my financial plans assuming the money was gone and just not worrying about it.
text: Recently she said that she's trying to get together the money to pay me back.
text: I told her not to bother.
text: I don't need it.
text: I don't care.
text: If she does manage to pay me back some day, great.
text: But I am not expecting it or planning on it.
text: So whether she pays me back or not does not affect our family relationship.
answer_details: author: money.stackexchange.com/users/14118/Jay
score: 4
sents: text: For the future: When a friend asks you for a loan, you have two good choices.
text: If you have the money to give to him, and you want to give him the money, give him the money, and that's it.
text: Alternatively, if you wish to give him a loan, make a legally binding contract with a payment schedule that forces him to pay back.
text: Or of course, keep your money.
text: Never give a loan without a written contract.
answer_details: author: money.stackexchange.com/users/13791/gnasher729
score: 1

Summary of the answers:
Pay off the balance you owe on the credit card. Once this is done, come with a realistic payment plan with your friend. If your friend has the money to pay you back, then you can sue him through the small claims court.
Firstly, pay off the balance you owe to the credit card and then focus on getting your friend to come up with a realistic payment plan. If your friend does not have the money to pay you back, then there is unfortunately little you can do. If your  friend is actually able to pay you back but refuses, then you could sue your friend  in a small claims court. If he doesn't have the money, then even if you win, the court can't force him to give you money he doesn't have. Never give a loan without written consent.