I Gave a Friend a Loan, and It Almost Ended Badly. Here's What I've Since Learned

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  • Years ago, I gave a friend a $500 loan.
  • It took ages to get paid back and it impacted the friendship in the process.
  • Creating a simple loan document and not being too judgemental can go a long way. 

Ultimately, I have no one to blame but myself.

There were plenty of periods during my life -- namely, in my late teens and early 20s -- when I was perpetually strapped for cash. As such, I tend to be sympathetic to other people who are going through tough times financially.

Years ago, I had a friend who had lost her job and was struggling to piece together a career after the fact. Although she had a college degree and decent experience, following her layoff, she didn't want to return to her former line of work. Instead, she wanted to explore her options. That meant taking a string of low-paying gigs while she found her bearings. 

At one point, she told me she had depleted her savings account and was racking up credit card debt just to stay afloat. Her parents had helped her out with a few months of rent, but it wasn't enough to pay for things like food and essentials. 

I didn't have a ton of money at the time -- I was in my 20s and wasn't all that financially secure. But I was in much better shape than she was. So I offered her a small loan of $500. I figured it would maybe be enough to cover a few weeks of groceries and bills so she wouldn't wind up with a whopping credit card balance.

In the end, though, I regretted lending her that money -- not because she didn't pay it back, but because I didn't go about it the smart way. In fact, I made a few mistakes in the process of giving out that loan that I hope to never repeat.

Where I went wrong with the loan

When I loaned my friend money, I did so knowing full well that it might take some time to get repaid. I was okay with that. But I never put that loan in writing, and that made me feel uneasy from the start.

I guess my logic for not documenting that loan was that I didn't want my friend to feel weird. And to be clear, I was never going to charge interest on it. But I should've put together some type of formal document for my own peace of mind -- even if it would've added more awkwardness.

That was my first mistake. My second mistake was making assumptions about what my friend was going to use the money for. 

I had assumed she'd use it for essential bills only. But when I found out that she'd gone to dinner with mutual friends a week after accepting that money, I was annoyed. My intent in giving her that cash was to help her cover bills she couldn’t afford -- not make it possible for her to splurge. Adding to my aggravation was the fact that I was trying to be very frugal those days, so dining out was a true luxury for me.

When things nearly came to a head

About a month after lending my friend money, I tried to casually bring up the topic of getting repaid. My friend expressed her gratitude for getting that loan -- but made no mention of a repayment date. 

That made me feel awkward. As such, I actually started avoiding her in the following weeks, mostly because I just didn't know how to handle the situation. 

Eventually, I got repaid. And when my friend gave me my money back, she did so graciously -- she dropped off an envelope with a hand-written thank you note, along with a treat from a local bakery. And from there, things immediately got less awkward, which I was extremely grateful for.

Lesson learned

Lending money to a friend can be tricky. In my case, I'll be the first to admit that I didn't handle the situation well. I realize I had no right to expect to be repaid quickly if that was never discussed, and I also had no right to judge my friend for spending money on things like dinner at a restaurant just because she owed me some cash.

But going forward, if I find myself in a position of having to lend money to a friend, I plan to approach it differently. First, I'll draw up a loan document, albeit a basic one, so there's a record of the transaction and, ideally, an end date for getting repaid. Second, I'll do a better job of walking away, so to speak, after giving that loan -- meaning, telling myself that it's not my business how that money is spent. 

Thankfully, what could've been a disastrous situation turned out okay for both parties involved. My friend got the lift she needed to get through a rocky period, and I got my money back and didn't wreck a friendship -- even though I easily came close.

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