I have no respect for people who ask their friends for a loan

What should I do if a friend refuses to repay a loan?

That depends on what your priorities are. Do you want:

The friend?
To me, that is someone who is trustworthy, who can be counted on -- in which case, the bevy of "you dodged a bullet" answers by Garrick Saito, User, Stephanie Kaye Turner, and Anthony Surage will serve you excellently.

The buddy?
You're disappointed by his actions and the loss of your money, but you miss his company and conversation. You can afford to take a loss. In that case, you can consider Edward Mitchell's advice and have him back in your life ... but don't ever forget that he doesn't have your back and that he will never have your back.

The money?
This perspective is one that has been mostly neglected so far. If you want or need the money back, there are a number of civil remedies that are available to you depending on your legal jurisdiction. In the US, most jurisdictions have a small claims court for modest sums of money (usually <$5000) that require a minimal amount of paperwork and are sans expensive lawyers. If you've tried that and there's no way you'll ever see that money again, you can try and get a tax write-off (I believe this usually requires a debt judgment in your favor, though you should verify with an accountant in your tax jurisdiction). Sometimes personal loans to a friend or a relative are considered by the IRS to be a monetary gift, which taxes the giver, not the receiver; Joseph Barillari's answer has a reference which you can check to see if you're on the hook.

I know, it isn't fair.

What are some clever responses to friends who ask too many questions about my finances?

"Are you my friend or my accountant? I'm getting confused ... "

[added:]

Having read your detailed commentary, I wonder why you say "I don't want advice on how to change myself, or get new friends."

Because these people really don't sound like friends to me. They sound like your mother.

True friends respect you, respect your wishes, and respect your privacy.

The only "clever" response you need is "Mind your own fucking business"

Why do people in India prefer borrowing from a friend over taking a loan from a bank?

I had a really good think about this the other day. Initially I thought it was to do with the fact that a friend will rarely push you to repay the loan, and also usually the loan will be interest free. However, on re examining this, I also conclude that there are huge psychological conflicts from borrowing from friends and family. Think about it this way:

The borrower has to make it clear that s/he wishes to borrow from the friend, and divulge the reasons for borrowing
By doing so, the borrower also makes her financial situation very apparent to her friend, and also risks the knowledge being made public to a larger friend circle
The borrower is not only burdened financially to repay her friend, but is also psychologically burdened to repay the debt, or run the risk of embarrassment and sometimes, ridicule and loss of friendship. Plus, there is the additional burden of owing a favour to the friend for having provided the loan, meaning the risk of having to reciprocate favours to the friend.

It would lead me to conclude that, people actually do not prefer borrowing from friends, it is just that they sometimes have no choice because:

Their financial situation does not allow them to qualify for a loan from traditional lenders, or
The turnaround time for loan processing is way too long. Usually, when someone needs a loan, it is an immediate requirement, rather than something foreseen months in advance.
The level of intrusion is way too deep. Banks want to see your ITRs, your financial statements and a bunch of other KYC documents, as well as ask private questions before proceeding to provide a loan, and perhaps the borrower has not got her records in order.

The situation in India is improving however, with quicker turnaround times, and more innovative lending practices allowing startups with as little as 6 months trading history to qualify for a loan. The level of intrusion has also dropped, with fewer documents being required for an assessment - Marketplaces such as MarketFinance are starting to create competition between lenders to force them to provide loans quicker than ever before.

Hopefully this means that people are freed from the burden of having to approach friends and family, and instead can get a financial institution to provide (in a safe, private way) the loan they are looking for.

What is the best way to deal with those people who ask for more than they give?

Yup, we have all encountered a few people like this in our lives. Takers. I have a family member who falls into this category (to the rest of my family's dismay).

This is someone who always seems to need a place to stay for a few days (which often turns out to be a few weeks or even a few months), always seems to be short a few bucks, whenever she calls I automatically think: what will she ask for now?

You have to pay close attention to your own needs when you deal with a person like this. They won't respect your needs or limits so it is up to you to see that your own needs and boundaries are met and respected. The upside is that people like this become used to hearing the word "no" from others so usually they don't take it personally when you say no. First and foremost don't be afraid to say no. But here are a few additional things to remember:


If you are considering saying "yes" ask yourself the following questions: Will I regret later that I agreed? Will I feel resentful later at having agreed? If the answer to these questions is yes then you should really turn the person down
If you decide to loan this person money consider it a gift. You will likely never see that money again. If you aren't willing to part with that money forever, say no. Note also: if you give them money once they will come back and ask for more in future.
Don't bother trying to have a heart to heart conversation about this person's proclivity to take, use and never give. They will never see things that way and it will be an exercise in frustration
If you are considering some kind of arrangement, say for example, the taker needs a place to stay for "a few days" and you are considering agreeing. Pin down specifics: how long will it be, exactly? What kinds of compensation can you expect? Will the person chip in and do dishes or cook meals? Get agreements, the more specific the better.
Stay away from their drama. If they ask you to intervene on their behalf for something or attempt to get you in the middle of a feud, politely but firmly refuse to engage
If your answer is no, do not allow yourself to be manipulated or guilt-tripped into a different answer

Good luck. Look after your own needs first.

How do you tell a friend that you are not going to loan them any money?

It all depends on what you are trying to say when you use the word’loan’.

If by loan you mean the way banks or money lenders operate, that is, provide the money asked for at a certain interest rate so you can profit by the loan arrangement. If this is what you mean by ‘loan’, then, it makes perfectly good sense that you don’t loan out especially to friends.

However, if you are trying to say that you don’t give money to anyone under any circumstances, then, that’s a different matter altogether.

When friends are in need, friends usually help out - financially or with whatever resources they have. It’s what friends do, at least, friends who love and care those they consider them to be friends.

I normally don’t loan out to anyone because I don’t like that sort of business arrangement… however, if a friend I know and love is in need, then, I make sure I am able to give as much as I can just to help them out. I don’t usually for that money again unless they specifically told me that they would be returning it. However, as a friend I feel that if they are in need then it is my duty as a friend to help out.

Of course, that doesnt mean if anyone asks I am ready to give because I am such a great friend… if someone asks me money because they need a new videogame then am not likely to help them out unless of course said friend is a video game developer and needs this for his work.

Key point is… one should always be wise when it comes to money but at the same time one should not allow money to make us slaves

What is a polite way to remind someone that they owe you money?

I presume this is nothing to do with a regular commercial debt, but rather the case of the person to whom one lent a $20 bill a while ago and who has forgotten (or possibly "forgotten") to pay you back.
My personal feeling is, never lend what you can't afford to give.

Most people are punctilious about repaying their debts.

If you know that they are genuinely forgetful then a simple, polite reminder (in private) is quite OK.

If the person is an habitual sponger, then don't lend them a cent until they have repaid what they already owe, however much they whine about how hard up they are. But don't bother to press them. They are not going to repay that $20. Ever.