Loan agreement between private individuals

Published byDocMuse

When you lend money to a relative or a friend, this is the document that turns a spoken arrangement into an obligation that can be proved. It records the amount in figures and in words, when it was handed over and how, when it is repaid, whether there is interest and what is owed on late payment. The amount in words is not a formality: where the two disagree, a court reads the words.

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Common questions

I am lending to someone close to me. Do I really need a contract?

That is precisely where it is most often missing and where it hurts most. A contract does not express mistrust; it fixes the sum, the date and the terms while relations are good — afterwards it is too late to agree anything at all.

How do I prove the money was actually handed over?

Cleanest is a bank transfer with a reference. Where it is paid in cash the contract has to contain an express statement that the sum was received, or go with a separate receipt — otherwise there is a loan agreement but no evidence it was performed.

Can I charge interest?

Between private individuals interest is due if it has been agreed. Write it in expressly, including how it is calculated — without a term the loan is interest-free, and interest is not assumed after the event.

What if the borrower does not pay the money back?

The first step is a written demand for voluntary payment, which fixes the default. A contract with a clear due date is what makes that demand meaningful — without a date for repayment it is hard to assert that anyone is late.