What To Do If You’ve Borrowed Money and Can’t Pay It Back

Serious African American couple discussing paper documents, sitting together on couch at home, man and woman checking bills, bank account balance, terms of contract, mortgage, loan agreement.
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In “Hamlet,” Polonius gives his son Laertes this advice: “Neither a borrower nor a lender be. For loan oft loses both itself and friend.”

Money had a knack for destroying friendships, family bonds, and marriages long before Shakespeare, and it still hasn’t lost its touch today. If you’re in the unenviable position of being unable to repay money you borrowed on a handshake from a friend or loved one, don’t panic. The relationship can survive — but that relationship is at a crucial crossroads. You’re holding a bad hand, but GOBankingRates talked to money experts who can help you play it to the fullest.

Never Make Someone Chase You For a Debt

As a business owner and financial analyst, Scott Hasting, co-founder of BetWorthy LLC, knows just how quickly money drama can wipe out years of friendship.

“I have seen a lot of relationships crumble because borrowed money was not returned,” Hasting said. 

The most important thing in almost all cases, whether you’re dealing with Visa or your brother-in-law, is never to dodge someone who loaned you money. 

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“Avoiding the person will only burn your bridges and will make it harder for you to pay what you borrowed,” Hasting said.

Confronting the issue is easier said than done, of course. Owing money you can’t pay can be a painful, shameful feeling that most people would want to block out — but ghosting someone who lent you a hand when you were down is always the wrong move.

“It can be very tempting to go quiet out of fear or guilt when you can’t repay a loan punctually,” said Brian Dechesare, CEO of financial career platform Breaking Into Wall Street. “Fostering open and honest communication will not just help maintain the relationship, but will also help you to remain in good favor as you renegotiate the loan period.”

Take It Seriously — You Would if it Were Your Money

As a licensed realtor and president of the real estate company Florida Cash Home Buyers, Omer Reiner’s business is based on relationships and money negotiations. He knows that even if a late payment doesn’t hurt your credit, it can certainly hurt your all-important credibility — and the attitude that a friend’s money is somehow less important than Wells Fargo’s is a recipe for resentment.

“The first thing that you should do is express how seriously you’re taking your missed payment,” Reiner said. “You should treat borrowing money from a friend with all the seriousness that you would treat borrowing from a bank or lender.” 

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Banks write off bad debt all the time — your friends don’t have that option. 

“Realize that they might have been counting on you paying this loan at a certain date, and your inability to do so might impact their lives in unforeseen ways,” Dechesare said.

Plead Your Case and Renegotiate

Once you drop the bad news, you’ll have to take the uncomfortable step of opening up about just how precarious your finances are — without fishing for pity. 

“Have a straightforward conversation with your friend or sibling,” said Olivia Tan, personal finance coach and co-founder of CocoFax. “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.”

Once the hard part is out of the way, suggest a new repayment schedule and ask if it works for them.

“Just make sure that the payment terms this time is attainable for you,” Hasting said.

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And that really is the key. 

“Don’t risk missing the payment again just because you want to look better,” Dechesare said.

Just as it’s natural to want to hide your head in the sand when you realize you’re not going to meet the deadline, some part of you will want to make false promises that you think your lender wants to hear. Here, too, that will only make things worse.

“Don’t assure your friend that you’ll have the money by next week if you know this isn’t true,” Reiner said. “Lying will just frustrate them more as well as damage your credibility. In this situation, it’s always better to be upfront and set accurate expectations.” 

No one could blame your lender for being skeptical the second time around. If that’s the case, consider offering an extra layer of protection. 

“I suggest working up a loan repayment contract to have something in writing, even when dealing with loans with friends,” said Jessica Carrell, co-founder of AnySoftwareTools. “This adds a layer of seriousness to the transaction, which can feel more formal than a simple handshake.”

Pay What You Can, Offer Service or Stuff, and Demonstrate Sacrifice

There are few things more frustrating than seeing someone who owes you money out at a bar or restaurant paying for leisure. Conversely, exhibiting austerity and sacrifice can go a long way to buying patience from the person you owe.

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“Take on a side job, even if only temporarily, to pay back the amount you owe,” said John Schmoll, owner of the website FrugalRules. “Look for additional ways to make extra money to apply toward your debt and pay it off faster, such as selling things you no longer use or want.”

If a side hustle or yard sale isn’t in the cards, you might be able to repay — or at least make a good-faith effort to make up for not paying — with some kind of service that you excel at professionally or as a hobby. 

“If you can, offer them your time, expertise, or assistance in any way that might help them, until such time as you can repay the loan,” said Dechesare.

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