Friday, November 19, 2010

Lending a friend money in good faith... yay or nay?

Question:  Five years ago, me and a group of friends were planning a vacation to celebrate graduating from school.  I loaned one of my friends $1,000 in good faith.  If I hadn't, he wouldn't have been able to join us.  Since it was in good faith, I didn't explicitly say when he needed to pay me back and before I knew it, five years has passed.  Recently, I've gotten into a financial bind and I could really use the money.  Can I nudge my friend to pay me back now?  (Los Angeles, CA)

Social Shrink:  What a good friend you are for fronting the money so your friend could join the group vacation!  You must have had enough extra change in your pocket to loan $1,000 for your friend, so the timing of when he was to pay you back must have not been that important at the time.

Your mistake was that you never explicitly communicated your expectations on when you wanted to be paid back.  For all your friend knows, he doesn't have to pay you back until 2020.  On top of that, you waited five years to ask him about the loan only because you need that money now?

We understand money is tight for a lot of people nowadays.  But you also need to consider your scenario - for all you know, your friend could be in a financial bind as well and can't pay you back the loan under the tight timeline you suddenly request.

Here's our $.02 cents:  inform your friend of your recent financial situation.  See where he is at and be flexible.  Have in your mind that he may say he's financially strapped as well before talking to him so you're not surprised.  If both of you are in a bind, let him know that you do expect to be paid back as soon as he can manage it.  Or, if he does have some extra cash available, offer for him to pay you back in installments that are reasonable to his budget.  That way, your friend doesn't have to fork over $1k right away, and you're still getting paid back slowly but surely.