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I lent money to my friend for his wedding through my credit card. It was around $5,000. He said that he would pay me back within 1 month. It has been almost 5 months. Every time on his salary date I remind him of the amount he owes me. He sends the interest amount though twice he has sent $600 and $750.

My credit score has become worse due to the balance. I have whatsapp chat screenshots of lending him money. What should I do now?

closed as off-topic by Dilip Sarwate, Dheer, Bob Baerker, Pete B., Nathan L Dec 10 '18 at 16:06

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    Realize that he is not your friend. and be glad that the lesson only cost you $5K. – jamesqf Dec 5 '18 at 3:56
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    I'm voting to close this question as off-topic because it is about interpersonal relationships, not personal finance. Try interpersonal.stackexchange.com – Rupert Morrish Dec 5 '18 at 4:29
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    "A friend is only a friend until you sell him something. Then, he's a customer." Quark the Ferengi – Harper Dec 5 '18 at 5:22
  • @JoeTaxpayer It's a bit muddled at this point, undoubtedly, but say you pay a vendor for a product through paypal with your linked credit card, and the vendor fails to send you the product. You're well within your rights to say they didn't follow through on their end and you want your money back. Replace that with the recipient reneged on contracted terms, which is similar enough to paying for something and not getting it. It would be different if this was a cash issue, but I think there should be some recourse if it was a credit card. The best answer is I don't entirely know. – CKM Dec 5 '18 at 16:44
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    @Acccumulation, not if that wasn't part of the agreement. There clearly wasn't a clause for breach scenarios to include these costs. If I found myself in this boat I'd make an attempt to roll that cost in to the debt, but the agreement was let me borrow $5,000 I'll pay you back $5,000 in 30 days. In this person's jurisdiction there might be some statutory interest rate indicated and it's certainly logical to include these costs but the borrower can also take the position that "It's not my fault you put this on a credit card and incurred those interest charges." – quid Dec 5 '18 at 23:22
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Pay the credit card bill and next time either gift the money or not, but do not lend to friends without sufficient legal documents. How quick can you have the 5K paid off?

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    My advice would be to not lend to friends. Give or give not, there is no loan. Legal documents matter if you're going to take your friend to court, but that's normally a last and unpleasant resort. – David Thornley Dec 5 '18 at 18:37
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My credit score has become worst due to his balance. What should I do now? I do have whatsapp chat screenshots of lending him money.

First thing you do: Pay off the balance you owe to the credit card. The loan to your friend no matter how the money was actually accessed and transferred should have involved funds that you could live without.

Now that the immediate problem of paying off the balance is gone then focus on getting your friend to come up with a realistic payment plan. But keep in mind the loan is going to damage the friendship, it already has. Too much pressure will make your friend angry, or embarrassed. Too little success will make you angry.

But what if you can't pay it back now. You need to refocus your financial efforts to get that balance paid off to minimize the damage to your wallet with any fees and interest. The inability to plug this hole in your finances quickly will just make the stress worse.

There is common advice to not loan to friends and family but instead gift it. But that advice is only true before you lend the money. Once the debt is created, then any mental switching of the account from loan to gift comes at a very high price in our internal accounting. This is hard to do without damaging the friendship.

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When your friend simply does not have the money to pay you back, then there is unfortunately not much you can do. When a creditor gives a loan to a debtor, then there is always the risk that the debtor won't be able to pay it back. That's a risk the creditor has to take. This is why companies are so interested in your credit score before they give you a loan or enter any form of "get stuff now, pay later" contract with you. They want to make sure you are a low-risk debtor.

Assuming that your friend debtor is actually able to pay you back but refuses, then the correct course of action from a "Personal Finance and Money" point of view would be to sue your friend debtor in a small claims court. If he does not pay you back despite a court order, hire a debt collector.

This would fix your financial situation, but that person will likely not be your friend anymore. If you want to solve this problem without ruining your relationship with your friend, then that's a topic for https://interpersonal.stackexchange.com.

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Realistically, you have 3 choices:

  1. Accept that you will never get the money back and forget about it. I don't know your financial situation. Maybe this would be difficult or almost impossible for you to do.

  2. Badger your friend to pay the money back. Maybe he will and maybe he won't. Either way, the friendship is probably ruined.

  3. Take your friend to court. As this appears to be a verbal agreement, it may be difficult to enforce. In principle, a verbal contract is just as binding as a written contract. But the problem with verbal contracts is that it's difficult to establish exactly what was agreed to, or even to prove that there was an agreement at all. Often the terms of the agreement are vague. Did you ever even say when he was expected to pay you back, whether he was supposed to make regular payments or pay in a lump sum, whether there would be interest and if so how much, etc? Your friendship would surely be ruined forever if you did this. If he doesn't have the money, then even if you win, the court can't force him to give you money he doesn't have. You could be chasing him down for years trying to get payment.

It may be that you are just stuck with paying $5000 for a painful lesson in personal finance and interpersonal relations.

May I suggest that in the future, don't loan money to a friend. If you want to help someone out, just give them whatever you can afford and are willing to give, with no expectation that you will ever see this money again. Choose an amount you can afford to lose.

About two years ago my sister asked to borrow $2500 for a business venture. It didn't work out and she lost the money I'd given her as well as the money of her own that she had used.

Fortunately, when I gave her the money, I told her that it was a gift and no need to pay me back. It was an amount that at the time I could afford to give away and just not worry about it. I made my financial plans assuming the money was gone and just not worrying about it.

Recently she said that she's trying to get together the money to pay me back. I told her not to bother. I don't need it. I don't care. If she does manage to pay me back some day, great. But I am not expecting it or planning on it. So whether she pays me back or not does not affect our family relationship.

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    The other problem with "take them to court" is that it violates the fundamental principle of lawsuits, namely, only sue people with money. Suppose you win your case against someone with no money: now what happens? You're in the same situation you were in before, trying to collect, but with legal fees to pay. – Eric Lippert Dec 6 '18 at 1:28
  • @EricLippert Yes. Note I said, "If he doesn't have the money", etc. I used to own a rental property and I had a tenant who trashed the place and did $10,000 damage. I sued them and won ... and I have never seen a penny. Friends have suggested I try to track them down. And I said, yeah, I could hire a private detective or some such, but unless they just won the lottery, I'd still get nothing, plus I'd have to pay the private detective. Even if I did the legwork myself, I'd spend all kinds of time and probably get nothing for it. Better to just write it off and move on. – Jay Dec 6 '18 at 17:44
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For the future: When a friend asks you for a loan, you have two good choices. If you have the money to give to him, and you want to give him the money, give him the money, and that's it. Alternatively, if you wish to give him a loan, make a legally binding contract with a payment schedule that forces him to pay back. Or of course, keep your money.

Never give a loan without a written contract.

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