Last updated January 13, 2025
What is a Loan Agreement?
A Loan Agreement is a contract that sets out the terms of a loan between a lender and borrower. Our Loan Agreement template can be used for loans between family members and friends or for more formal lending situations, such as borrowing money from a company.
To create a complete and comprehensive Loan Agreement, you should specify the loan amount, any interest charges, a repayment plan, and a payment date or schedule. Although you can lend or borrow money without documenting the arrangement, a written contract provides both parties with specific loan terms and sets clear expectations.
A Loan Agreement is also known as a:
- Private Loan Agreement
- Secured Loan Agreement
- Personal Loan Contract
- Demand Loan Agreement
What is the purpose of Loan Agreements?
Loan Agreements protect the interests of both lenders and borrowers by documenting the terms of a loan. If either party does not abide by the terms of the loan, the wronged party can take legal action against the other and use the document to prove their case.??
As a lender, a Loan Agreement can help you legally enforce a borrower's pledge to pay you back. As a borrower, a Loan Agreement spells out the details of the loan for your records and can help you keep track of payments.
When should a Loan Agreement be used?
A Loan Agreement can be used in most private lending situations. Many lenders do not loan out money without having a Loan Agreement in place because they want to ensure that they will be paid back. Create a Loan Agreement any time you are lending money to:
- Businesses, such as start-up companies or corporations
- Individuals, such as family members and friends
Alternatively, you can also use a Promissory Note when lending money. Promissory Notes are less formal than Loan Agreements.
How do I write a Loan Agreement?
The easiest way to create a Loan Agreement is by using a Loan Agreement template. Our template includes the important clauses that a Loan Agreement needs but also allows you to add additional terms to fit your unique lending situation. Our template is also customised to Singapore's laws.
You can create your document by entering the following information into our Loan Agreement template:
- The lender's and borrower's information
- The loan amount
- The interest rate and any late fees
- The repayment method
- Any collateral terms
What is a secured Loan Agreement?
A secured Loan Agreement is one where the borrower provides collateral. Collateral is an asset or piece of property offered by the borrower to secure repayment of a loan. If a borrower secures a Loan Agreement with collateral and fails to repay the loan, the lender can seize the asset as compensation.
Secured Loan Agreements are most useful when there is a higher risk that the borrower will default on the loan or a substantial amount is being loaned. If the loan is not secured with collateral, the lender risks losing the amount loaned if the borrower is unable to repay.
Should I charge interest in my Loan Agreement?
Choosing to charge interest or not depends largely on your specific situation. If you are lending money to a family member or friend, you may feel uneasy about charging them interest and profiting from the transaction. As a lender, you are under no obligation to charge interest.
However, choosing to charge interest can also come with its benefits. Besides allowing you to make some money, charging interest can incentivise a borrower to make payments on time and pay back the loan within the designated time. Keep in mind that there can be limits on interest rates.
In Singapore, when you charge interest to a borrower, there is a rebuttable assumption that you are a moneylender. In this case, the restrictions set out in the Moneylenders Act 2008 and Moneylenders Rules 2009 will apply to you. This legislation puts restrictions on moneylenders, such as maximum allowable interest rates, as well as requirements, such as providing statements of account, receipts, and other documents. If you are or think you might be a moneylender, consult with the applicable legislation for the restrictions and requirements that may apply to you.
Should someone witness my Loan Agreement?
Although it is rarely required by law to have a witness sign a Loan Agreement, it can still be a good idea. Having the lender's and borrower's signatures witnessed strengthens the agreement and adds legitimacy. If a dispute ever arises because either party does not follow the terms of the Loan Agreement, the presence of a witness's signature can be immensely helpful.
Should Loan Agreements be notarised?
In most situations, you do not need to notarise your Loan Agreement. However, like a witness signature, notarisation can help verify the identity of the person signing the document and add legitimacy to your document. Notarisation also confirms that all signers understand the meaning of what they are signing.
Is a Loan Agreement legally binding?
Yes, a Loan Agreement is legally binding. If a borrower does not pay back a loan, the lender can take legal action against them and use the document to prove the borrower's obligation to pay them back. Likewise, if a lender is demanding payment from a borrower earlier than what their Loan Agreement stipulates, the contract binds the lender to follow the original terms.
