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Money & relationships: What to do if you can't repay loan to friend or family member

, ET Bureau|
Last Updated: Jun 29, 2020, 11.31 AM IST

Summary If you are unable to repay the loan taken from your friend or family member six months or year ago, due to job loss or salary cut, here's what you can do to ensure that trust between the two of you does not erode.

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As a rule, do not take loans from family members or friends because it is the quickest way to ruin relationships.
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For many people, Covid-induced financial constraints have aggravated seemingly normal life situations. For instance, if you had taken a loan from your sibling or friend, intending to return it in six months, the situation may suddenly be wrought with anxiety because you have lost your job.

Realising that the sibling may also be in need of money due to a salary cut he faced may not ease things. The most difficult part may be ensuring that the trust between the two of you does not erode. So what do you do? How can your ensure that you will repay the loan without denting your relationship?

1. Don’t avoid the person
The worst thing you can do to harm your relationship, be it with a family member or friend, is to avoid them. Since you are bound to run into them some time or the other, any effort to circumvent the person or topic of repaying will not only make the situation awkward between the two, but will also land you in their bad books because they will assume you are not interested in repaying.

2. Express intent to repay
The best recourse for you is to confront the situation and have a straightforward conversation with your friend or sibling. Explain your difficult financial circumstances and reassure them that you intend to repay at the earliest. Do not be overly emotional or play the victim card; just state the facts and be honest about your intentions.

3. Set a new time frame, start small & pay interest
The best way to address the lender’s concerns may be to fix a new time frame for repayment. If the loan is big and you were repaying in instalments, cut the size of the instalment to pay whatever you can till you find another job or your finances stabilise. Another way to regain their trust is to suggest paying an interest when you are able to restart the instalments. It’s best to put the new time frame and interest amount in writing and share a copy with them to avoid any bad blood between you two.

4. Find other ways to help
If it is impossible for you to start repaying immediately, convey the same and then identify other ways in which you can help your friend or sibling. It could be something that requires physical assistance or presence. This is essentially a way of working on your relationship and maintaining contact so that the lender understands your intent.

5. Don’t spend on other things
During the time you are unable to repay the loan, do not indulge in discretionary spending or lifestyle purchases that are seen as extravagant. If observed by the lender, it will be assumed, not without reason, that you are financially comfortable and only looking for an excuse not to pay back the loan. You will, of course, be unable to spend if you are genuinely in dire straits, but in any case, do not use the credit card and keep a low spending profile.

6. Avoid taking loans from family, friends
As a rule, do not take loans from family members or friends because it is the quickest way to ruin relationships. If at all you do, return the money at the earliest. Do not regard the transaction casually and treat it like a formal, business arrangement. If it’s a big loan, have a written agreement in the presence of witnesses and a copy of the pact shared by both the parties.

If you have a wealth whine, write to us...
All of us have been in a financial dilemma when it comes to relationships. How do you say no to a friend who wants you to invest in his new business venture? Should you take a loan from your married brother? Are you concerned about your wife’s impulse buying? If you have any such concerns that are hard to resolve, write in to us at etwealth@timesgroup.com with ‘Wealth Whines’ as the subject.

Disclaimer: The advice in this column is not from a licensed healthcare professional and should not be construed as psychological counselling, therapy or medical advice. ET Wealth and the writer will not be responsible for the outcome of the suggestions made in the column.

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