When someone tries to borrow money from you, it can be difficult to say no, especially when you know you have the cash and they have a real need. However, this also puts you in a vulnerable position. After all, you’re never sure if they’ll be able to pay you back or how lending them money now will affect you in the future. That said, knowing what to expect may help you be wiser about whom to lend your money to. Here, we list down five kinds of borrowers and how to deal with them.
What: They’ll only borrow once, but the amount in question is so big that once is more than enough.
How to Deal: Regardless of their reason for borrowing money, make sure you have a signed formal written agreement for this. Draft a document that includes all pertinent information, such as the complete names and addresses of the lender and the borrower, date and place of signing, the amount loaned, and the payment terms, among others. Ask a lawyer to help you create this, and make sure both you and the borrower sign all copies. It might be prudent to have the borrower assign a guarantor, someone who’s willing to take on the debt in case the borrower fails to meet the payment terms, and to have witnesses be present and sign the copies as well. Make sure you have all documents notarized and double-check other precautionary measures you can take with your lawyer.
Who: Small But Terrible
What: These are the people who borrow only small amounts, but do so often.
How to Deal: Lending someone money once is admittedly already a terrible inconvenience. Imagine having to keep track of several IOUs from the same person all the time. If you want to put a stop to this habit—and it has become a habit—you’ll need to take yourself out of the equation. The next time they ask you for money, firmly tell them no. And if you find yourself struggling to come up with reasons why you’re refusing to lend them money, remember that you don’t need to explain yourself to them. If, however, you don’t mind them borrowing money from you, you can at least make the arrangement more convenient for you. Have them transfer the cash directly to your account or impose interest rates so that there’s something in it for you.
What: These people never pay their debts on time. Most of them probably subscribe to the old adage “It’s better late than never.”
How to Deal: Affixing fees, interest rates, or some sort of consequence to the debt in case of late payment is one way you can encourage people to pay on time. Having a signed formal written agreement with set dates of payment can also go a long way into making sure you get paid on time (see details for drafting a legal document under “One-Time-Big-Time”). If the person is a friend or a family member, you can also consider setting up calendar notifications that will inform both you and the borrower, possibly even the witnesses, when their debt is due.
Who: Feeling Close
What: These can be friends or family members who think that they have a right to borrow money from you whenever they want.
How to Deal: It can be hard to say no to people, especially from those who feel that you will not refuse them, but the more you do it, the easier it gets. Again, you don’t need to provide an explanation for why you don’t want to lend them money. Your money is yours to use as you will. If you do lend them money, especially if the amount is significant, don’t let your relationship get in the way of drafting a legal document (see details for drafting a legal document under “One-Time-Big-Time”). Sometimes, it’s your friends and family members who actually betray your trust.
Who: The Vanishing
What: Perhaps the worst of the lot, these people will borrow a certain amount from you and then completely disappear from your life.
How to Deal: Consider whether the amount they borrowed is worth the effort of chasing after them. If it’s a negligible amount, you might be better off letting it go. If the amount is significant enough to hurt, draft a game plan. Note that this doesn’t necessarily mean you’ll get your money back. People who have no intention of paying their debts have a talent for making themselves scarce.
What should your game plan include? First, check if you have a signed formal written agreement that they owe you money. That will make your case stronger. If everything has been communicated verbally or if you no longer have evidence of the debt, try to create a paper trail when you reach out to them. Through email or SMS, get them to acknowledge their debt—if they respond to you at all. Although this might not hold up in court, it’s something at least.
As tempting as it might be, avoid insulting or threatening them with bodily harm. You can also go to the local barangay hall where the person resides to report them after which a hearing will be scheduled or hire a lawyer to help you manage the next steps.
Chasing after people who don’t want to pay you back is going to cost you (and we’re not just talking about money), so think about how far you’re willing to go to get your money back. It’s terribly unfair, but at the end of the day, money can be earned again. Other things such as your health, your time, and your safety, aren’t as replaceable.