Are you friends with a freeloader? Here’s why lending can hurt

New research has found that money lent to mates is often not being repaid, but there are ways to deal with the situation.

Friendships are being stretched by financial friction as new research suggests millions of Australians are owed money by a mate.

The key pressure points are money lent for splitting bills when eating out, combined gifts, event tickets and ride sharing, and it can severely damage long-term relationships.

A new survey by Finder.com.au reveals one in four people are owned money by a friend, with some loans handed out for flights, accommodation and gambling expenses.

It found 62 per cent have never lent money to a mate, and 14 per cent are always paid back, but the remaining 24 per cent are still waiting to be repaid.

Finder.com.au money specialist Sarah Megginson says not repaying money breaks trust, strains friendships and can hurt the finances of the lender.

“The first step is to ask your friend to repay the debt,” she says.

Finder’s Sarah Megginson says money talk can be awkward.

“It can be a little awkward to bring up the topic of money but if you don’t ask and then you’re resentful, that can be more damaging to the friendship long term.

“Then, stop covering for them in the future. You may need to reset boundaries with some people and a clear conversation is the ideal place to start.”

Megginson says the rising cost of living means more people need financial help, and right now some friends may not be repaying debts because they cannot afford to – even if they want to.

“They’re avoiding the conversation as much as you are, because they’re not sure what answer to give you,” she says.

“A big part of the issue is our aversion to uncomfortable conversations. If you consider yourself someone who doesn’t like conflict or who avoids confrontation at all costs, it can be anxiety-inducing to ask a friend or family member to repay money they owe you.”

“But if you stay silent and gather resentment, that can cause even more damage to the relationship than a quick text asking the question: ‘hey, can I ask what the plan is for repaying the money you owe me?’”

Set clear expectations around borrowing and lending money, such as repayment amounts and time frames, setting a repayment schedule and asking the borrower what is their Plan B if payments fall behind.

“This gives you a reference point to return to if the wheels fall off,” Megginson says.

Tribeca Financial head of advice Robert Devlin says lending money to friends and family can be fraught with danger.

“What seems like a simple arrangement can quickly become complicated as things such as relationships and employment can change very quickly, putting the borrower in a challenging financial position,” he says.

Lending is tricky at the best of times, but becomes more complex when friends are involved.

“A good question to ask yourself before lending money is why wasn’t a traditional lender like a bank willing to lend the money to them in the first place? The answer is usually that they were a riskier borrower in the bank’s assessment to start with.”

“If your friend doesn’t repay you on time or in full, you could be forced to either forgive the debt or chase them up through formal process which can in some cases end up in court, an expensive and time-consuming process for all.”

Devlin suggests having an open conversation to work out a payment plan to resolve debts, using a third party to mediate if that helps.

“In some situations, you will need to consider engaging a solicitor who can guide you through the formal steps to recover the debt,” he says.

Originally published as Are you friends with a freeloader? Here’s why lending can hurt