Lending money to friends and family

This is the question that causes the most damage when it is skipped, because the two sides often answer it differently and neither finds out for months.

The honest test is simple: if this money never comes back, does the relationship survive? If the answer is no, do not lend it. Lend a smaller amount you could lose without resentment, or say no clearly, which is kinder than a loan you will be angry about for two years.

1. The amount and the date. Obvious, and still the most commonly misremembered pair once a year has passed.
2. When it comes back. A single date, or a monthly amount and a number of months. “When I can” is not a term — it is the absence of one, and it guarantees that any request from you later feels like a new demand rather than the thing you agreed.
3. Interest, or explicitly none. Say which. See whether to charge interest — for most family loans the answer is no, but it should be a decision rather than an omission.
4. What happens if a payment is missed. Agree now, while everyone is relaxed, that a missed month means a message and a new date, not a silence. This one sentence prevents most of the damage.
5. Who else knows. Particularly with family. A loan that a sibling or a partner discovers later is a second argument on top of the first.

People resist writing it down because a document feels like an accusation. It is worth being clear about what a written record is actually for: not so that you can take someone to court, which you almost certainly never will, but so that in eight months neither of you has to rely on memory. Memory is where the resentment comes from, and it is unreliable in good faith on both sides.

A note either of you can look at is enough. It needs:

• Who, how much, which currency, and the date it was lent
• The repayment terms you agreed
• Interest, or the word “none”
• Every repayment as it happens, with its date

A message thread you both keep works. A shared spreadsheet works — with some caveats. A ledger both of you can see works and removes the need for anyone to be the record keeper. What does not work is one person's private notes, because the whole value is that the record is not contested.

The single most corrosive part of a private loan is the asking. Every reminder costs the lender something socially, so most lenders under-ask, let it drift, and grow resentful; and most borrowers read the silence as the debt mattering less than it does.

Anything that makes the due date arrive on its own fixes this — a calendar alert on the borrower's phone, a standing transfer, an automatic reminder. The mechanism matters less than the fact that a schedule, not a person, raised the subject. That is the specific problem LoanCompass is built around: borrowers with an account are emailed three days before each due date automatically, so the first nudge is never from the person owed the money.

• Ask early and small. A short message after the first missed date is a favour to both of you. Three months of silence makes the eventual conversation ten times worse.
• Renegotiate rather than accumulate. If the original terms are not going to happen, change them — extend the term, halve the payment, drop any interest to zero. A plan that is being met is worth more than a plan that is being ignored.
• Decide, and then say it. If you are going to forgive the debt, forgive it explicitly and close the record. Leaving it open “in case” keeps the obligation alive and costs you the relationship anyway.
• Do not lend again to cover the first loan. Almost nothing good follows.

LoanCompass exists for the part after the handshake: what was lent, what has come back, what is still owed, and what is due next — visible to both sides, with the reminders sent by a schedule rather than by you. No money moves through it and it is not a lender. How it works.