It has happened to everyone: You lend money to a family member, friend or acquaintance, only to wait endlessly for repayment.
Maybe the borrower had the best of intentions to repay you, but life got in the way. Or, perhaps the person who asked for money has simply turned out to be an untrustworthy slacker who never had any intention of writing you a check.
Whatever the reason, the bottom line remains the same: You want that money back — pronto.
Following are some tips that might help you receive repayment faster. In many situations, it’s true that you’ll attract more flies with a sweet approach — and our advice reflects that fact.
But in other cases, being gentle and understanding simply makes you a chump. So, we also have suggestions for when you need to get serious and take off the gloves.
1. Nudge the borrower with a reminder
Yes, you’re probably doing a slow burn about the money you are owed. And you have every right to feel that way.
But there is a chance that the borrower has forgotten about the debt, or that it has gone to his or her mental “back burner.” Sometimes, a simple reminder is all it takes to get your hands on the cash.
Neal Frankle, a Westlake Village, California-based certified financial planner, writes about this approach on his blog:
“Remind them what they promised to do. Be specific about the amounts and dates they agreed to. Ask if you have it right or if you’ve made any mistakes about the date, the amount or the promise.”
In other words, put the ball in the borrower’s court and give him or her the chance to respond and make things right.
2. Recap the loan agreement
If the borrower says something about the loan that doesn’t sound right, confront him or her about the error. Human nature is such that you may need to remind the borrower of the loan terms, and explain in detail what is owed.
A 2012 study published in the Journal of Economic Psychology found that too often, lenders have “blind trust” in borrowers — who in turn have “blind spots” when it comes to the loan terms.
The study authors wrote:
“We tested — and found support for — two main predictions: (1) that recall and evaluation of loans would be subject to a self-serving bias such that borrowers would, for example, recall having paid back a larger proportion of the loan, and (2) that loans, and particularly those not paid off by the agreed upon date, would have pernicious effects on the personal relationship between lender and borrower.”
So, restate that the money was a loan — not a gift — and detail exactly what the borrower still owes.
Don’t expect a warm-and-fuzzy response, however. The study authors also found that borrowers are strangely unaware of the “negative feelings and perceptions” that an unpaid loan evokes in lenders.
Try not to let that insensitivity rub you the wrong way. Do your best to remove personal feelings from the situation. For better or worse, you are now in a business negotiation, pure and simple.
3. Work out a repayment plan
Sometimes, meeting the borrower halfway is the best method of getting at least some of your money back. Perhaps the borrower can make smaller payments over a longer period than you had initially planned.
You can also encourage repayment by drawing up a formal repayment agreement and having it signed and notarized, says Bankrate. You can draft legal documents like loan agreements and past-due letters through an online service like RocketLawyer.
Or, maybe the borrower can provide other services in lieu of repayment. You may not get exactly what you want precisely when you want it under this approach. But getting something back from the borrower is better than nothing.
4. Talk to a lawyer
This is where the gloves begin to come off.
If all else fails — and the money in question is a significant amount — it might be time to hire a lawyer to write a letter on your behalf demanding repayment.
Of course, bringing in a lawyer isn’t cheap. On his website, Frankle recommends doing this only if the cost of hiring the lawyer is less than half the amount you hope to collect from the borrower.
Also remember that once you bring in a lawyer, the ballgame changes. Chances are good that this step will cause lasting damage to your personal relationship with the borrower.
5. Go to court
If you prefer to keep matters in your own hands, but still want the support of the long arm of the law, consider going to small claims court.
As Nolo points out:
“Small claims court offers ordinary people the chance to resolve small disputes at a low cost and without a lot of complication. With a little education, you can represent yourself from start to finish in small claims court.”
Individual states have their own dollar limit for small claims court cases, and Nolo breaks these limits down at its website.
Have you had success getting someone to repay a loan you made? Share your tips in comments below or on our Facebook page.