Many people seek my assistance after lending money to someone they know and then struggling to recover it. Often, the borrower is in urgent need, promises to repay “straight away,” but years pass without a single dollar being returned.
To help you avoid this common pitfall, here are some essential rules to follow before lending money—rules that can save you time, money, and frustration:
-
Only lend money you can afford to lose. Lending funds you might need soon can create unnecessary stress. If your finances are tight or you’ll need the money in the near future, it’s better to keep it rather than risk non-repayment.
-
Always put the loan agreement in writing. Verbal promises can be forgotten or disputed, and borrowers might later claim the money was a gift. A written loan agreement clearly outlines repayment terms and protects your rights if you must take legal action.
-
Set a firm repayment date—and enforce it. Clearly specifying when the loan must be repaid shows you expect punctual repayment. If you allow extensions or delays, the borrower may assume you’re flexible and postpone repayment indefinitely.
-
Take immediate action if repayment is delayed. Don’t wait months or years hoping the borrower will pay you back. Instead, instruct a lawyer to send a formal letter of demand threatening legal proceedings. This shows you’re serious and increases your chances of recovering the money.