Loan Agreement Format in India: With or Without Interest
A practical loan agreement template for a private loan between a lender and borrower, including an interest-free option, repayment terms, payment-mode safeguards, default provisions and execution guidance.
Updated: 31 August 2026Lending money to a friend, relative or another person can lead to avoidable disputes if the terms are left entirely oral. A properly drafted written agreement records the amount advanced, purpose if relevant, interest or interest-free status, repayment schedule, consequences of default and the parties' signatures.
Updated Loan Agreement Format
The following template may be adapted for a private unsecured loan. Fill in all blanks carefully and delete clauses that do not apply.
This Loan Agreement ("Agreement") is made at on this day of , 20.
BETWEEN
Mr./Ms. , son/daughter/spouse of , residing at , PAN/other identification (hereinafter referred to as the "Lender", which expression shall, unless repugnant to the context, include the Lender's legal heirs, representatives, executors, administrators and permitted assigns);
AND
Mr./Ms. , son/daughter/spouse of , residing at , PAN/other identification (hereinafter referred to as the "Borrower", which expression shall, unless repugnant to the context, include the Borrower's legal heirs, representatives, executors, administrators and permitted assigns).
WHEREAS the Borrower has requested a loan of ₹ (Rupees only) for ;
AND WHEREAS the Lender has agreed to advance the said amount on the terms recorded below.
NOW IT IS AGREED AS FOLLOWS:
1. Loan Amount and Disbursement. The Lender shall advance ₹ to the Borrower by account-payee cheque / bank transfer / other legally permitted banking or prescribed electronic mode. Transaction reference: . The Borrower acknowledges receipt upon credit of the amount.
2. Interest. Choose one option and delete the other:
(a) Interest-free: The loan shall carry no interest; or
(b) Interest-bearing: The outstanding principal shall carry simple interest at % per annum, calculated from until repayment, subject to applicable law.
3. Term. The loan shall commence on and shall be finally repaid on or before , unless repaid earlier in accordance with this Agreement.
4. Repayment. The Borrower shall repay the loan in instalment(s) of ₹ each, payable on , or in accordance with the following schedule: . Repayment shall be made only through a legally permitted banking or prescribed electronic mode wherever required by law.
5. Prepayment. The Borrower may prepay all or part of the outstanding amount without penalty unless the parties expressly state otherwise here: .
6. Borrower's Acknowledgment. The Borrower acknowledges the debt and undertakes to repay the principal together with agreed interest, if any, in accordance with this Agreement.
7. Default. A failure to pay an amount within days after its due date shall constitute a default. On default, the Lender may issue a written demand and pursue remedies available under applicable law. Any default interest or additional charge must be expressly stated, reasonable and legally permissible.
8. Representations. Each party confirms that the information supplied for this transaction is true to the best of that party's knowledge and that the Agreement is being executed voluntarily and without coercion.
9. Taxes, Stamp Duty and Costs. Each party shall comply with applicable tax requirements. Proper stamp duty, if chargeable, shall be paid in accordance with the law applicable in the State or Union Territory where the instrument is executed. The cost shall be borne by .
10. Notices. Any notice under this Agreement shall be sent to the postal address and/or email address stated below, or to an updated address notified in writing.
Lender email/address:
Borrower email/address:
11. Entire Agreement and Amendments. This document records the agreed loan terms. Any amendment should be in writing and signed by both parties.
12. Governing Law and Jurisdiction. This Agreement shall be governed by the laws of India. Subject to any mandatory law, courts having territorial and pecuniary jurisdiction at shall have jurisdiction over disputes arising from this Agreement.
IN WITNESS WHEREOF, the parties have signed this Agreement on the date and place first written above.
Name:
Signature:
Name:
Signature:
Name & address:
Signature:
Name & address:
Signature:
Precautions While Giving or Taking a Private Loan
- Use traceable banking channels. Avoid cash for substantial loan transactions. Preserve the cheque, UTR, bank statement or other payment reference.
- Record the exact amount and repayment dates. Specify whether repayment is lump-sum or by instalments.
- State clearly whether interest applies. If the loan is interest-free, say so expressly. If interest applies, specify the rate and calculation method.
- Verify identity and address. Keep appropriate KYC and contact details of both parties.
- Check the borrower's repayment capacity. A loan agreement records rights but does not itself guarantee recovery.
- Pay proper stamp duty. Stamp duty and execution requirements can vary by State or Union Territory, so check the locally applicable law before signing.
- Keep signed originals and payment records. Each party should retain a complete executed copy together with proof of disbursement and repayment.
Friendly Loan Between Friends or Relatives
A "friendly loan" usually refers to money advanced because of a personal relationship rather than through a commercial lender. It may be interest-free, but the absence of interest does not remove the need to document the amount, date, repayment obligation and payment mode. A clear written record can protect both the relationship and the legal position of the parties.
Applicable Legal Points in India
Contract law: A private loan agreement should satisfy the general requirements of a valid contract under the Indian Contract Act, 1872, including competent parties, free consent, lawful consideration and lawful object.
Income-tax payment mode: From 1 April 2026, the Income-tax Act, 2025 governs current tax years. Section 185 contains restrictions on taking or accepting certain loans, deposits and specified sums of ₹20,000 or more except through specified banking or prescribed electronic modes, subject to statutory exceptions. Section 188 contains corresponding restrictions on repayment of certain loans, deposits and specified advances.
Stamp duty: The proper stamp duty on an agreement depends on the instrument and the law applicable in the State or Union Territory of execution. An inadequately stamped instrument can create evidentiary and enforcement difficulties. Obtain local advice for the correct stamp article and value.
Evidence and electronic records: Where electronic communications, bank records or digitally executed material are relied on, evidentiary issues are governed by the Bharatiya Sakshya Adhiniyam, 2023 and other applicable law.
Frequently Asked Questions
Is a written agreement necessary for an interest-free loan?
A written document is strongly advisable. It helps prove the amount advanced and the obligation to repay even when no interest is charged.
Are two witnesses compulsory for every private loan agreement?
Not necessarily for every unsecured loan agreement, but witness signatures can strengthen proof of execution. Specific transactions may have additional statutory requirements.
Can I pay or repay a loan in cash?
For covered transactions, the Income-tax Act, 2025 imposes restrictions once the statutory threshold is reached. Using account-payee banking or prescribed electronic modes is the safer practice and creates reliable proof of the transaction.
Does a loan agreement have to be notarised?
Notarisation is not a universal requirement for every private unsecured loan agreement. However, proper stamping and any transaction-specific execution or registration requirement should be checked under the law applicable to the particular document and State or Union Territory.
Disclaimer: This page provides a general legal format and information for educational use. It is not a substitute for advice from a qualified professional on the facts of a particular transaction.