ClauseryLoan agreement
A written agreement between a lender and borrower covering the principal, interest, repayment schedule, any collateral, a guarantor and what happens if the borrower defaults. More detailed than a promissory note.
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A loan agreement is a two-sided contract signed by both lender and borrower (and often a guarantor). Use it instead of a promissory note when the loan is larger, includes collateral, has a guarantor, or includes detailed default and enforcement terms.
For small informal loans between friends or family, the one-page promissory note is usually enough. For interest-bearing loans, secured loans (with collateral), or business loans, use this agreement and work out the instalment amount with the loan repayment calculator.
What to include#
- Parties and date. Full legal names, addresses of lender and borrower, and the date of the agreement. Add a guarantor if someone is co-signing.
- Principal and interest. Amount lent, annual interest rate (if any), whether it is simple or compound, and the date interest starts accruing.
- Repayment schedule. Lump-sum or instalments (monthly is typical), the day of the month payments are due, first/last payment dates, and where to send payment.
- Prepayment and late fees. Whether the borrower can repay early without penalty, any late fee and grace period, and any default interest rate.
- Security (collateral) and default. Any property securing the loan (vehicle, equipment, real estate), what counts as default (typically a missed payment for 30 days), and the lender's remedies on default.
How to fill it in#
Step 1: Check usury and tax rules
Confirm the interest rate is within legal limits. Large interest-free loans can be treated as gifts for tax; check imputed-interest rules.
Step 2: Set the repayment schedule
Use the loan repayment calculator to work out monthly payments for amortising loans, or set a lump-sum date.
Step 3: Add collateral or guarantor if needed
For risky borrowers, secure the loan against an asset or add a creditworthy guarantor who becomes liable if the borrower defaults.
Step 4: Define default clearly
State how many days late triggers default, what fees apply, and how you will collect (demand letter, collateral seizure, court).
Step 5: Sign, disburse and track
All parties sign and date. Transfer the principal by bank transfer (not cash, to create a paper trail). Track each payment against the schedule.
Related templates and guides
Questions
Loan agreement vs promissory note?
Promissory note: short, one-party promise, for small personal loans. Loan agreement: two-sided, signed by both, for secured, business or larger loans with detailed terms.
Does it need to be notarised?
Generally no — signatures make it enforceable. Notarisation helps prove signatures are genuine in a dispute and is a good idea for secured or large loans.
Can I charge interest to family?
Yes. Check local usury limits and, for large loans, whether your jurisdiction treats interest-free loans as gifts for tax purposes.
What happens if the borrower defaults?
You can send a demand letter, draw on any collateral, collect from a guarantor, or sue for the balance. The agreement sets out the process.
Is a verbal loan agreement enforceable?
Sometimes, but proving the terms (amount, rate, schedule) is hard. Always put loans in writing — even an email or promissory note is better than nothing.
These are general templates, not legal or tax advice. Have anything unusual reviewed for your jurisdiction.