How do I "get paid back" by a friend that I lent money to? Yea, it's sucks. Frank has the solution.
How many of us dread this?
Turns out a lot.
Our Frank survey suggest over 80% of people are hesitant to lend money to a friend or family member because they're afraid of having to remind them or chase them down to get re-paid.
Put in the most simple terms people (1) don't want yet another thing on their to-do list and (2) they don't want to be 'that guy' that's always 'collecting'. It's annoying and awkward.
People want to get paid back, without the chase.
It's only fair, after all lending money to a friend is different from giving money to a friend.
Most of us have at least some money that we could help a friend with if we knew we would get it back. But not a lot of us are fortunate enough to have the money to just hand over to someone. But most "experts" say a loan to a friend is just a gift.
The prospect of having to 'chase down' or remind a friend is so off-putting that a lot of people just avoid these situations.
They don't know how, so it feel like an opportunity lost
As we showed in Part 2 of this series, that's a big loss.
The prospect of having to chase down a friend leads people to finance things through banks, credit cards and specialty lenders, when a direct loan from someone close to you would be better for everyone.
But what if we could make sure that nearly everyone got paid back, without having to chase their friends down?
The Solution (a la Frank):
If you've been following this series you probably think we sound like a broken record, but there is a lot of evidence showing that you can avoid this by adding a couple of important steps:
1) Create a 'default' repayment schedule:
We don't mean default in the financial sense, we mean it in the behavioral economics sense.
In the case of lending money to a friend or family member, just asking the friend or family member to decide on a repayment schedule and set-up an autopay (like Frank does) will save the vast majority of people from having to "chase them down".
In fact for Frank's beta users, they were able to reduce the number of missed payment drastically (to under 0.5% of payments) just by asking for this default repayment schedule.
2) Empower an experienced intermediary in case something goes wrong:
If something does go wrong, the hardest thing to do is begin the conversation. Lenders hate the annoyance and taboo associated with collecting, while borrowers often feel shame and judgment of not being able to re-pay.
Looking to an experienced intermediary is critical. In the old days people often turned to a mutual friend or respected elder to help mediate.
In today's world we have so much research and data on the best way to faciliate that conversation, that it can be close to painless for both sides.
In the rare case that something goes wrong, Frank is able to be the intelligent intermediary to broach the subject and facilitate a positive outcome.
It's that easy.
Two simple choices can help move us from the dread of chasing a friend down, to the satisfaction (both emotional and financial) of helping a friend out.
Next Article: Part 6: Power Dynamics with Friends and Money (coming next week)
Previous Article: Part 4: Terms Without Negotiation
This is Part 5 on our series about the challenges and solutions to lending money to friends and family
Part 6: Power Dynamics with Friends and Money
Part 7: Friendships at risk
Part 8: Something Went Wrong, Now What?
D'Arcy Coolican, Co-Founder, Frank
Frank is a platform that uses behavioral research to help make it easy to lend and borrow money with friends and family.