Lending to someone you trust?

What this document contains

9 clauses every loan agreement carries, plus 2 you can add.

1. 01

   Introduction

   The preamble: date and place, the Lender and Borrower with the recital wording their entityType selects, and recitals that follow the loan's stage — a fresh private loan being recorded, or an existing debt being acknowledged and put on terms.

2. 02

   The Loan

   The operative clause, branching on the loan's stage. FRESH_LOAN records the advance — already made (with date, mode and transaction reference, the record that turns bank transfers into a provable loan) or to be made on execution. EXISTING_DEBT renders the Borrower's signed written acknowledgment of a subsisting liability — the form that gives a fresh limitation period under Section 18 of the Limitation Act 1963 — with the debt then repayable on this Agreement's terms.

3. 03

   Interest

   Whether the Loan carries interest. The friendly default is interest-free; when interest is charged it is simple interest at a stated rate per annum, with payments applied first to costs, then interest, then principal. Note for guidance, never for the paper: habitual lending at interest can attract state money-lending statutes — this instrument is for the occasional private loan.

4. 04

   Repayment

   How the Loan comes back: in one lump sum by a stated date, or in monthly installments (amount, count and first date, with the aggregate computed so the schedule can never contradict the amounts). Prepayment is always allowed without penalty — the friendly posture this instrument exists to keep.

5. 05

   Payments and Evidence

   The evidence mechanics the whole instrument exists for: every payment moves through a traceable banking channel (bank transfer, UPI, cheque — never cash), the transaction reference is agreed to be sufficient evidence of it, and the Lender gives a written closure acknowledgment on repayment in full.

6. 06

   Borrower's Confirmations

   Short confirmations that keep the loan clean: the Borrower borrows in their own right and for no unlawful purpose, faces no insolvency proceeding, and confirms the notice address — and both Parties record that this is a private accommodation, not a money-lending business.

7. 07

   Default and Recovery

   What happens when payment stops: a written demand, a stated number of days to make it good, then the entire outstanding balance falls due at once. Optional overdue interest from the due date, and the Borrower bears the reasonable costs of recovery. The written demand this clause contemplates is the Demand for Payment notice — the claims-side twin of this instrument.

8. 08

   Governing Law and Dispute Resolution

   Applicable law, jurisdiction, and dispute resolution mechanism (courts or arbitration under Indian law).

9. 09

   General Provisions

   The closing machinery: entire agreement, written amendments, notices, severability, no waiver by indulgence, counterparts, assignment (the Borrower may not; the Lender only on written notice), who bears the stamp duty, and the relationship confined to lender and borrower — expressly not a money-lending business.

Optional clauses

• Guarantee

  A third person stands behind the Borrower on the same paper: a continuing guarantee with liability co-extensive with the Borrower's (Section 128, Indian Contract Act 1872), demand on the Guarantor after the Borrower's failure within the Default clause's period, and — drafted honestly against Section 133 — a variation of terms binds the Guarantor only with the Guarantor's written consent.

  Worth adding when: A third person — a family member, a friend, an employer — is standing behind the borrower's repayment and should sign the same agreement as guarantor

• Custom Clause

  A free-form clause for bespoke provisions not covered by standard clauses. Use clauseId 'custom-clause-1', 'custom-clause-2', etc. to add multiple.

What the law requires

The three-year clock, and the acknowledgment that restarts it

A suit for money lent must be brought within three years of when repayment falls due (Limitation Act 1963, Schedule, the money-claim articles). A written acknowledgment of the liability, signed by the borrower BEFORE the period expires, starts a fresh period under Section 18 — which is precisely what the EXISTING_DEBT form renders. Always state a repayment date, so the clock has a start line, and never present the acknowledgment form as effective for a debt whose limitation has already expired.

Sections 18 and Schedule, Limitation Act 1963

An agreement, never a promissory note

An unconditional promise in note form is a negotiable instrument (Section 4, Negotiable Instruments Act 1881): excluded from electronic execution by the IT Act's First Schedule, charged under the promissory-note stamp article, and carrying NI-Act consequences the parties do not need. Keep the instrument a two-party agreement — it proves the same debt, supports the same suit, and stays e-sign eligible.

Section 4, Negotiable Instruments Act 1881; First Schedule, Information Technology Act 2000

Cash kills the evidence and invites penalty

Accepting or repaying a loan of ₹20,000 or more in cash contravenes Sections 269SS/269T of the Income-tax Act 1961, with penalty equal to the amount (Sections 271D/271E). The instrument therefore obliges every payment through a traceable banking channel and records the transaction references — which is also what turns bank transfers into a provable loan rather than an arguable gift.

Sections 269SS, 269T, 271D and 271E, Income-tax Act 1961

Occasional lending, not a money-lending business

State money-lending statutes regulate the BUSINESS of money-lending — habitual lending at interest can need a licence and can make interest irrecoverable. This instrument is for the occasional private loan: interest is optional and off by default, the parties record that the lender does not carry on money-lending, and the type must never be presented as a vehicle for regular lending at interest.

State money-lending legislation (e.g. the money-lenders Acts of the states); the recital in the Borrower's Confirmations clause

A guarantee that survives scrutiny

A guarantor's liability is co-extensive with the borrower's (Section 128, Contract Act 1872), but a variation of the contract without the surety's consent discharges the surety (Section 133). Draft the guarantee as continuing, put the guarantor on the same instrument as a signer, and make variations bind the guarantor only with written consent — a waiver purporting to survive uncommunicated variations is the clause courts read down.

Sections 126–128 and 133, Indian Contract Act 1872