What is a Loan Agreement?
A Loan Agreement is a binding contract between a borrower and a lender documenting the terms of a monetary loan. Often, it’s also known as a loan contract, borrowing contract, or lending contract.
This agreement outlines both parties’ responsibilities, the loan amount, the repayment schedule, and the interest rate. Having one can benefit both parties by establishing clear terms and security for lending money to family, friends, or another business.
LawDepot’s customisable agreement can be used to create a valid contract in the following Australian states and territories:
- Australian Capital Territory (ACT)
- New South Wales (NSW)
- Northern Territory (NT)
- Queensland (QLD)
- South Australia (SA)
- Tasmania (TAS)
- Victoria (VIC)
- Western Australia (WA)
Our template includes information about required disclosures for lenders in the business of providing loans predominantly for personal, domestic, or household purposes. Helpful links and guidance are available once you have completed your document to determine if disclosures are applicable to your loan.
Types of Loan Agreements
Loan Agreements can be secured or unsecured:
- Secured Loans are used when collateral assets back the loan and help ensure repayment. This is also known as security. If a borrower doesn’t repay a loan, the lender claims ownership of the collateral property as repayment.
- Unsecured Loans are used for loans that do not require collateral assets. Because they lack collateral security, they tend to have higher interest rates. If a borrower fails to repay a loan, the lender can pursue legal action to collect the unpaid debt.
You can use LawDepot’s Loan Agreement template for private loans, whether it's for personal or business purposes.
Should I use a Loan Agreement?
Yes, it’s good to use a Loan Agreement whether you’re lending or borrowing money. A contract can help enforce terms when lending large sums of money to friends, family, or businesses.
Although verbal agreements can be binding, either party may later forget the discussed terms. Having a contract in writing benefits both parties by:
- Creating clarity and preventing misunderstandings regarding the loan and payments
- Being used as evidence of agreed-upon terms if a dispute occurs or legal action takes place
- Providing additional security by documenting the loan repayment schedule and amount, and also determining if a co-signer is guaranteeing the loan in case the borrower defaults on any payments
It’s essential to note that in Australia, private loans made by companies to shareholders or associates of shareholders are subject to Division 7A for tax purposes. If you’re lending money to shareholders, it’s recommended to seek the guidance of an accountant or solicitor to ensure your agreement is in compliance with Division 7A.
Loan Agreements versus Promissory Notes
Loan Agreements are used for larger sums and include more complex terms to secure the loan. A Promissory Note has simpler terms and is beneficial for more straightforward or smaller loans.
You can use LawDepot’s Promissory Note template if simpler terms are best for your loan.
Key components of a Loan Agreement
A Loan Agreement generally includes:
- The loan amount being lent to the borrower
- The parties involved, with their full names and addresses, which can include individuals or companies
- Any interest rate the lender is charging the borrower
- Any collateral used as security for the loan
- Location and governing law for the loan
LawDepot’s customisable Loan Agreement includes all the key elements of a valid contract for your jurisdiction.
Can I write my own Loan Agreement?
Yes, you can write your own Loan Agreement. You can use LawDepot’s easy-to-use questionnaire when lending money to others, like family, friends, or between your business and another company.
If you have questions regarding Loan Agreements or want legal advice regarding your contract, seek the advice of a solicitor.
How do I write a Loan Agreement?
Use LawDepot’s Loan Agreement template to create and download a PDF of your contract. You’ll be prompted to include all necessary elements to create a valid and enforceable contract.
First, select if you’re lending or borrowing money, then complete the following steps:
Step 1: Name the purpose and location of the loan
You can select if your loan is for reasons such as:
- Business
- Debts or bills
- Real estate
- A vehicle
Then select which state or territory you live in to customise your agreement to comply with the laws that govern contracts in your jurisdiction.
Step 2: Document payment details
Next, add the loan amount and whether interest will be charged on the loan. Then, include the date the money will be lent to the borrower and add details such as:
- How the borrower will repay the loan
- How often the borrower will make payments
- The first payment date
- A payment schedule
With our template, you can also specify whether the borrower is allowed to repay the loan early and whether there are any penalty charges for late payments.
Step 3: Include the parties’ details
Name both the lender and borrower. If either party is a company, be sure to add the legal company name to your agreement. You can also include more than one lender or borrower to your agreement.
If you have a co-signer, be sure to include their details in your contract.
Step 4: Add the final details
State if the borrower is backing the loan with an asset or personal property, also known as collateral. If there is any collateral, give a full description of what is being used.
Our template also allows you to specify whether the lender is selling the collateral to the borrower and if the lender will retain it until the loan is fully repaid. You can add any additional information unique to your lending situation.
Finally, determine if the agreement will be signed in front of a witness or a notary public.
| Easily sign and request signatures for your documents from the comfort of your home with LawDepot’s eSign. |
Are Loan Agreements legally binding in Australia?
Yes, a Loan Agreement is legally binding in Australia if it meets the criteria for a valid contract. This includes if the agreement has:
- An offer that is made by one party, and acceptance is freely made by another party
- Consideration, or something of value, is exchanged
The intent of both parties is to make the agreement legally binding
- Certainty, meaning the contract has clear terms
- Legality, meaning the contract must be for lawful purposes and not include any illegal actions
Additionally, for a contract to be binding, both parties must have the capacity to enter into an agreement. It will be invalid if it’s made fraudulently, or if the contract is signed under duress or undue influence.
Do I need to notarise my Loan Agreement?
You don’t necessarily need to notarise a Loan Agreement for it to be considered valid. However, there are benefits to having a notary present when signing your contract. It helps validate signatures on your agreement in case a dispute occurs later on.
Keep in mind, depending on the nature of the loan and your jurisdiction's laws, you may be required to have witnesses sign your agreement or have it notarised. Always check with the relevant institutions or local laws for specific requirements.
