Using a Letter of Demand for Loans Between Friends or Family: What You Should Know

Lending money to friends or family is a gesture of trust and goodwill. However, when repayment stalls or the borrower stops responding altogether, it can lead to frustration, financial strain, and tension in the relationship. While it may feel awkward to take formal action against someone close to you, there are situations where a Letter of Demand (LOD) becomes a necessary step to recover the loan.

In Singapore, personal loans between individuals are still subject to legal obligations, and a well-drafted LOD can help you assert your rights without immediately resorting to litigation. 

This guide walks you through when and how to use a Letter of Demand for personal loans involving friends or family, while balancing legal effectiveness and relationship sensitivity.

Can You Legally Demand Repayment from Friends or Family?

Yes. In Singapore, a loan between private individuals, whether documented formally or agreed verbally, is legally binding if it meets the basic elements of a contract: offer, acceptance, consideration (the loaned money), and an intention to create legal relations. Even without a written contract, other forms of proof such as bank transfer records, text messages, or emails discussing repayment can support your claim.

That said, personal loans can be harder to enforce if there’s no documentation, as disputes over the agreed terms may arise. This makes it crucial to keep proper records, even when lending to people you know well.

In Singapore, if a personal loan includes interest, the lender must generally hold a moneylender’s license, unless exempted (e.g., lending to relatives without profit motive). Otherwise, the interest may be deemed unenforceable.

When is a Letter of Demand Appropriate?

A letter of demand is best used when informal reminders have failed and you want to make it clear that you expect repayment by a certain date. It can be appropriate in situations such as:

• The borrower ignores repeated messages or calls about repayment.

• There is no active dispute about the loan amount or terms, but payment is still overdue.

• You want to document a final attempt to resolve the matter before taking legal action.

If tensions are already high, an LOD can help shift the discussion from personal conflict to a formal, fact-based request—setting the stage for resolution.

See more on our complete guide to letter of demand in Singapore.

What to Include in a Letter of Demand for Personal Loan

A personal loan LOD should contain the same core components as a business debt LOD, but with some adjustments for clarity and sensitivity:

Where possible, attach supporting documents like bank transfer slips, loan agreements, or written confirmations of the loan terms.

Letter of Demand Tone and Language Considerations

Because you are dealing with friends or family, the tone of your LOD matters. While it should remain professional and clear, avoid overly aggressive or accusatory language. The aim is to convey seriousness without unnecessarily damaging the relationship.

Some tips for tone:

• Use formal but neutral language.

• Avoid emotional statements or personal grievances.

• Focus on facts, i.e. dates, amounts, agreements made.

• Keep the letter concise and free from unrelated issues.

Striking the right balance increases the likelihood of a positive response.

Potential Outcomes After Sending the Letter of Demand

Once the LOD is sent, there are several possible outcomes:

1. Full Repayment: The borrower pays the amount in full before the deadline.

2. Partial Repayment or Installment Plan: The borrower offers a repayment schedule, which you can choose to accept.

3. Dispute Over the Loan: The borrower denies owing the amount or disputes the terms, in which case further legal steps may be needed.

4. No Response: If the borrower ignores the LOD entirely, you may need to escalate the matter legally.

It’s important to decide in advance how flexible you are willing to be if the borrower proposes alternative repayment arrangements. Check out our article on whether you can ignore a letter of demand in Singapore.

Legal Options if the Loan Isn’t Repaid After Sending LOD

If the LOD deadline passes without repayment, you can consider the following options in Singapore:

1. Small Claims Tribunals (SCT): For claims up to S$20,000 (or S$30,000 with a signed Memorandum of Consent), the SCT provides a cost-effective, lawyer-free option.

2. Civil Litigation: For higher amounts or complex disputes, you may need to file a claim in the Magistrate’s Court or higher.

3. Mediation Services: Organisations like the Singapore Mediation Centre can help resolve disputes without going to court.

Choosing the right option depends on the amount owed, your budget for legal costs, and whether you want to preserve the personal relationship.

Protecting Relationships While Handling Debt

Debt recovery involving loved ones can easily escalate into lasting resentment. To reduce the emotional fallout:

• Give informal reminders before escalating to an LOD.

• Be transparent about why you are taking formal steps.

• Avoid discussing the debt in public or with other family members.

• Be open to mediation or repayment plans that suit both parties.

Sometimes, maintaining the relationship may mean compromising on repayment terms, especially if the borrower is genuinely struggling financially.

Tips for Documenting Personal Loans

To prevent misunderstandings and make future recovery easier, follow these best practices when lending to friends or family:

• Put It in Writing: Even a simple signed note stating the loan amount, date, and repayment terms can help.

• Keep Payment Records: Use bank transfers rather than cash for clear evidence.

• Agree on a Repayment Date: Avoid vague “pay me when you can” arrangements.

• Include Interest Terms (if applicable): State the rate and calculation method if interest is charged.

Good documentation not only protects you legally but can also make the repayment process smoother.

Conclusion

While no one wants to take legal action against friends or family, unpaid personal loans can place strain on both finances and relationships. A Letter of Demand offers a formal yet measured way to request repayment, providing the borrower with one last chance to settle the debt before legal escalation.

If you’re looking for an easy, affordable, and legally compliant way to send a Letter of Demand in Singapore, our automated letter of demand service can help. Our platform guides you through the process, ensuring your letter is professional, accurate, and ready to send, helping you take control of your debt recovery without damaging relationships unnecessarily. Get a quote today!