Financial Feuds with Friends

Posted on: January 30, 2015

Written By: Iona Bain

It’s getting towards the end of the month and money’s running tight. Unopened bills are stacked beneath the letterbox and the rent is due. Payday still feels an eternity away.

Circumstances like these gave rise to the much-maligned payday loans industry. For many though, looking to a friend for financial assistance is far preferable to the exorbitant interest rates and aggressive collection tactics of the payday lenders. Borrowing from our nearest and dearest can certainly seem a tempting proposition – a loan with zero percent interest (if they are charging, you might want to consider what kind of friend they are), without a credit check and from someone you trust.

But turning friends into creditors isn’t without risk. A recent survey, conducted by ISA provider Scottish Friendly, showed 15 percent of people in the UK have lost a friend following a financial feud. That figure rose to 28 percent among those aged between 24 and 35. That it’s Generation Y who are most likely to fall out over money is hardly a great surprise. The squeeze on young people’s finances coupled with the growth of the private rented sector has led to flat-sharing becoming increasingly popular, and sharing until later in life too.

As rent is the biggest regular expense for many, and the one people are most likely to struggle to pay, a flatmate may seem the natural person to turn to in a pinch – but what starts as an act of goodwill can turn sour if the flatmate doesn’t pay the money back. However if the loan is well managed there needn’t be any cause to come to blows.

A Few Tips

When the loan is agreed, make sure a repayment plan is understood and agreed by everyone involved. The sum could be paid back incrementally or all at once, depending on circumstances, but either way make sure firm dates and sums are set. If the loan is to be paid incrementally, arranging a standing order with the bank to make regular repayments will help put everyone’s mind at ease.

Crucially, make sure not to lend a sum that will put you in hardship – this is sure to worsen the blow if the money isn’t repaid. Similarly, neither party should feel they have been pressurized into the deal – this could lead to resentment even when the debt is repaid. Being honest about expectations upfront will help avoid this.

But perhaps a more difficult situation is not when a flatmate asks for money, but when they don’t pay their share of the rent or bills. As rent is frequently taken out of just one person’s bank account – the lead tenant – a flatmate who doesn’t contribute can leave the lead seriously out of pocket.

The date for transferring funds between flatmates should be set well in advance of the day rent is due. That way, if the flatmate doesn’t transfer the money at the agreed point there’s still time to gently remind them – maybe with a pointed joke or two – before the rent is due.

If that doesn’t work then it may be the moment to do what good friends do: find out if they are struggling, see if you can help them find a better way to organise their finances, and finally – if you can both afford it and believe they will be able to repay – you might consider offering to help financially.

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