Loan Agreement
Free, balanced loan agreement for loans between individuals or businesses in India, with a repayment schedule and fair default terms.
A loan agreement records the amount lent, interest, repayment schedule and what happens on default. You need one whenever you lend or borrow a meaningful sum from a friend, relative, business contact or another company, outside a bank.
What to watch when you use this
- Disburse and repay only through banking channels. Income tax law restricts accepting or repaying loans of ₹20,000 or more otherwise than by account payee cheque, bank draft or electronic transfer.
- If the lender is in the business of money-lending, the State Money-Lenders Act may require a licence and limit the interest that can be charged. Occasional loans to friends or business contacts are usually treated differently.
- A company borrowing from someone other than a bank, another company or certain exempt persons, such as its directors with the required declaration, should check the deposit rules under the Companies Act, 2013 before accepting money.
- A suit to recover a loan must generally be filed within three years under the Limitation Act, 1963. A written acknowledgement of the debt signed by the borrower before that period ends starts a fresh limitation period.
- If the loan is secured by a mortgage of immovable property, that needs a separate mortgage document with its own stamp duty and, usually, registration.
Stamping and registration. Stamp duty is a State subject, and an unstamped or insufficiently stamped instrument is generally inadmissible in evidence under Section 35 of the Indian Stamp Act, 1899 until the duty and penalty are paid. Registration requirements are separate and depend on the instrument and the State. Confirm both for your State before executing this document.
LOAN AGREEMENT
This Loan Agreement is made on [DATE] at [CITY] between:
[LENDER NAME], [son/daughter of [PARENT NAME] / a company incorporated under the Companies Act, 2013], residing at / having its registered office at [ADDRESS], PAN [PAN] ("Lender"); and
[BORROWER NAME], [son/daughter of [PARENT NAME] / a company / firm], residing at / having its registered office at [ADDRESS], PAN [PAN] ("Borrower").
1. LOAN
1.1 The Lender agrees to lend the Borrower ₹[AMOUNT] (Rupees [AMOUNT IN WORDS] only) ("Loan").
1.2 The Loan will be disbursed by bank transfer to the Borrower's account [ACCOUNT NUMBER, BANK, IFSC] on or before [DATE]. The Borrower will confirm receipt in writing.
1.3 The Borrower will use the Loan for [PURPOSE].
2. INTEREST
2.1 The Loan carries simple interest at [RATE]% per annum on the outstanding principal, calculated on the basis of actual days elapsed and a 365-day year.
2.2 Interest is payable [monthly on the [DAY] day of each month / together with each instalment / at the end of the term].
2.3 Where the law requires, the Borrower will deduct tax at source from interest and furnish the certificate to the Lender within the prescribed time.
3. REPAYMENT
3.1 The Borrower will repay the Loan with interest in accordance with the repayment schedule in the Schedule, by bank transfer to the Lender's account [ACCOUNT NUMBER, BANK, IFSC].
3.2 If a payment date is not a business day, payment will be made on the next business day.
3.3 The Lender will acknowledge every payment received in writing or by email within [NUMBER] days.
4. PREPAYMENT
The Borrower may prepay the whole or any part of the Loan at any time by giving [NUMBER] days' written notice, without any prepayment charge. Interest will be payable only up to the date of prepayment.
5. SECURITY
[OPTION A: The Loan is unsecured.]
[OPTION B: As security, [GUARANTOR NAME] will guarantee repayment by signing this Agreement as Guarantor / the Borrower will deliver [DESCRIBE SECURITY]. Any mortgage of immovable property will be created by a separate document.]
6. BORROWER'S CONFIRMATIONS
The Borrower confirms that:
(a) it has full power to borrow and sign this Agreement;
(b) borrowing the Loan does not breach any law, any agreement binding on it or, for a company, its constitutional documents or the deposit rules under the Companies Act, 2013; and
(c) the information it has given the Lender about its financial position is true and not misleading.
7. EVENTS OF DEFAULT
Each of the following is an event of default:
(a) the Borrower fails to pay any amount within [NUMBER, FOR EXAMPLE 15] days of its due date;
(b) any confirmation in clause 6 is found to be materially untrue;
(c) the Borrower is declared insolvent, or insolvency proceedings are admitted against it; or
(d) the Borrower uses the Loan for a purpose other than that in clause 1.3 without the Lender's consent.
8. CONSEQUENCES OF DEFAULT
8.1 On an event of default, the Lender will give the Borrower written notice describing it. If the default is capable of remedy and is not remedied within [NUMBER] days of the notice, the Lender may declare the entire outstanding Loan and accrued interest immediately due.
8.2 Overdue amounts carry additional simple interest at [RATE, FOR EXAMPLE 2]% per annum from the due date until payment. No other penalty or charge is payable.
8.3 The Lender will recover amounts only by lawful means. The Lender will not use or threaten force, harassment or public shaming, and will contact the Borrower only at reasonable times.
9. COSTS
Each party will bear its own costs of preparing this Agreement. Stamp duty will be borne by [the Borrower / the parties equally].
10. NOTICES
Notices will be in writing and sent by hand, Speed Post or email to the addresses above or to [LENDER EMAIL] and [BORROWER EMAIL].
11. ENTIRE AGREEMENT AND AMENDMENTS
This Agreement is the entire agreement about the Loan. Any change, including any extension of time for repayment, must be in writing and signed by both parties.
12. GOVERNING LAW AND DISPUTES
This Agreement is governed by the laws of India. [OPTION A: The courts at [CITY] will have exclusive jurisdiction.] [OPTION B: Disputes will be referred to a sole arbitrator appointed by mutual agreement under the Arbitration and Conciliation Act, 1996, with the seat at [CITY].]
IN WITNESS WHEREOF the parties have signed this Agreement on the date first written above.
_______________________ _______________________
[LENDER NAME] [BORROWER NAME]
Lender Borrower
[If applicable]
_______________________
[GUARANTOR NAME], Guarantor
residing at [ADDRESS], PAN [PAN]
The Guarantor guarantees payment of all amounts due from the Borrower under this Agreement. The Guarantor's liability will not exceed ₹[AMOUNT] plus interest under clause 8.2. The Lender will give the Guarantor a copy of any notice of default.
Witnesses:
1. Name: [NAME] Address: [ADDRESS] Signature: ____________
2. Name: [NAME] Address: [ADDRESS] Signature: ____________
SCHEDULE: REPAYMENT SCHEDULE
Instalment no. | Due date | Principal (₹) | Interest (₹) | Total (₹) | Outstanding after payment (₹)
1 | [DATE] | [AMOUNT] | [AMOUNT] | [AMOUNT] | [AMOUNT]
2 | [DATE] | [AMOUNT] | [AMOUNT] | [AMOUNT] | [AMOUNT]
[ADD ROWS AS NEEDED]
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This free template is provided by ClauseAudit as general information, not legal advice, and using it does not create an advocate-client relationship. Replace every [BRACKETED] placeholder. Stamp duty and registration requirements vary by State and are your responsibility. Have the final document reviewed by a qualified advocate before use.When to use this template
- You are lending money to a friend, relative or business contact and want the terms in writing.
- A director or promoter is lending money to their own company or firm.
- Two businesses are making an inter-corporate or trade loan.
- An informal loan already given needs to be documented with a repayment schedule.
How to fill it in
- Enter both parties' full names, addresses and PAN, and choose individual or company wording.
- Fill in the loan amount, purpose, disbursement date, interest rate and how interest is paid.
- Prepare the repayment schedule with each instalment's principal, interest and outstanding balance.
- Choose unsecured or secured, and add the guarantor's details and liability cap if there is a guarantor.
- Pay stamp duty under your State's stamp law, by stamp paper or e-stamping, before or at signing. Duty on loan agreements and guarantees varies by State.
- Both parties, and any guarantor, sign before two witnesses. Disburse only by bank transfer and keep the bank record with the agreement.
- Keep written acknowledgements of every repayment received.
Key clauses explained
- Disbursement and repayment by bank transfer (clauses 1.2 and 3.1)
- A bank record is the best proof that money was actually lent and repaid, and it keeps both parties within income tax restrictions on cash loans.
- Free prepayment (clause 4)
- Allowing the borrower to repay early without charge is fair and reduces the risk of a dispute about interest for a period the money was not used.
- Default with notice and cure (clauses 7 and 8.1)
- A short grace period and a written notice before the whole loan becomes due prevents a single late payment from turning into a demand for everything.
- Modest default interest, no other penalty (clause 8.2)
- Excessive penal charges are likely to be cut down by a court under Section 74 of the Indian Contract Act, 1872. A small additional rate is easier to justify.
- Capped guarantee (signature block)
- A guarantor's liability is usually co-extensive with the borrower's unless limited. Stating a cap tells the guarantor exactly what is at risk.
Frequently asked questions
Is a loan agreement on plain paper valid?
A loan agreement on plain paper can still be a valid contract, but if it is chargeable with stamp duty and not stamped, it may be impounded and face admissibility problems as evidence until the duty and any penalty are paid. Stamp duty on loan agreements varies by State and is usually modest, so it is worth paying it at the time of signing.
Is a promissory note better than a loan agreement?
A promissory note is a short, unconditional promise to pay and is useful as evidence of a debt. It must be stamped correctly. A loan agreement records much more, such as purpose, interest, schedule, default and security. Many lenders use both. Note that promissory notes generally cannot be signed electronically under the Information Technology Act, 2000.
What interest rate can I charge on a private loan?
There is no single national cap for private loans. If you are in the business of money-lending, your State's Money-Lenders Act may require a licence and set limits. Courts can also reduce interest they find excessive and unfair, including under the Usurious Loans Act, 1918 where it applies in your State. A rate in line with prevailing market rates is safest.
Can I take post-dated cheques as security?
Many lenders do. If a cheque given towards a legally enforceable debt is dishonoured, Section 138 of the Negotiable Instruments Act, 1881 may apply, provided the statutory notice and time limits are followed. Whether a security cheque falls within Section 138 depends on whether the debt was due when it was presented, so take advice before presenting one.
How long do I have to recover an unpaid loan?
Generally three years under the Limitation Act, 1963. When the period starts depends on the loan terms, for example whether it is repayable on demand or on fixed dates, so do not wait until the last moment. A written acknowledgement of the debt signed by the borrower, or a part payment acknowledged in writing, before the period ends can start a fresh period. Keep records of both.
Can a private limited company take a loan from a friend of the founder?
Be careful. The Companies Act, 2013 and its deposit rules restrict companies from accepting money from the public. Loans from directors, with the required declaration, banks and other companies are generally exempt, but a loan from an unrelated individual may be treated as a deposit. Check with your company secretary or advocate before accepting it.
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Review a business loan contractThis free template is general information about Indian law as at 2026-10-10, not legal advice, and using it does not create an advocate–client relationship. Replace every bracketed placeholder and have the final document reviewed by a qualified advocate before use.