simple loan agreement template for parents, children or friends
Do you need a simple loan agreement template?
Download today a legally binding loan agreement, free from hassle. Not overly officious, but with the protection that the lender could get their money back using the legal system* if the borrower doesn't repay the loan.

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Simple Loan Agreement Template

25/08/2023
(Last Updated: 04/10/2023)
7 min read
Instant Download of Loan Agreement Template

Instant Download

Legally Binding Loan Agreement Template

Legally Binding*

Easy to fill in Loan Agreement Template

Easy to fill in

Sign, witness and lend the money with the Loan Agreement Template

Sign, Witness, Lend



A simple loan agreement is a legally binding document that can be used between friends and family who are looking for protection, without reams of overly complicated clauses. Whilst it is a simple template, it offers the lender legal protection to prove the money given is a loan and not a gift, and can be used at court to enforce repayment.

We explain below what is included within a simple loan agreement template, who should use it and what happens if a borrower doesn't repay the loan.


Simple Loan Agreement
Download a simple loan agreement, free from hassle, that is legally binding* in England & Wales.
  • Instant download
  • Easy to fill in
  • Legally binding*
  • Sign, witness and lend the money

20230827 Simple Loan Agreement V1.3 - Free Template - Page 1
£11.99 Inc Vat

Who can use a simple loan agreement?


    1

    Parents lending to children

A simple loan agreement suits a parent to child relationship. Where you may find a more complex agreement is needed, is where your child is living with a partner or if they are looking to get married. The reason being is that the equity in the property, required to pay off the loan, may be shared with their partner and as such there may not be enough money to settle the loan in full.

Gift assumption for parents
If you are lending money to your children and you are expecting to have the money paid back, then you need some form of loan agreement, because parents giving money to children is presumed a gift, unless it is stated otherwise in writing. Where there is no documented loan agreement or evidence, and the parents request the loan to be repaid, their children could argue that the loan was a gift.

This also applies where parents are loaning money to their child to buy with their partner. Read more - Is it a gift or is it a loan?

See case law on Pettitt vs Pettitt for further information.

    2

    Brother to sister

Similar to parents, however there is an automatic assumption that money paid between siblings is presumed to be a loan and not a gift. A simple loan agreement makes the amount and expectations for repayment clear. This means that if the loan isn't repaid, the lender can pursue repayment through the Courts.

The risk is where your sibling gets married, as the equity in the property could be diluted, as it would be shared with their new partner. This is avoidable if the new partner is added to the loan agreement, to make them jointly liable for the repayment of the loan - much like a mortgage lender would do.

    3

    Friends

As Judge Rinder on ITV might say: "paper, I love paper evidence". He says this because a simple written, signed and witnessed loan agreement between friends is better than nothing, in the event the borrower fails to repay the loan to the lender. The borrower would struggle to argue they aren't liable to repay the loan, because the agreement is evidence of the understanding between the parties.

What is included in a Simple Loan Agreement?


Loan amount

The larger the sum of the loan, the more comprehensive the loan agreement should be, especially if the loan is to be repaid from the sale of a property.

Interest applied

Most informal loans don't have an interest rate applied to them, because the lender is a parent and simply wants the loan repaid. However, if there is a rate to be applied, then it can only be 0.1-2% on top of the current Bank of England Base rate. If the interest rate is higher, then you will require a more complex loan drafting, as the agreement falls under the Consumer Credit Act.

Interest is an Annual Percentage Rate (APR) and is chargeable on the unpaid loan.

Repayment

Is the loan to be repaid every month, year or on sale of a property/asset?

Default

This is the main reason you have the arrangement documented in agreement - if the borrower defaults on the repayment of the loan, then the lender can enforce the repayment using the loan agreement.

When is a simple loan agreement not a good idea?


Business loans

A simple business loan agreement doesn't exist and the risks to the lender are far greater. When a parent loans money to their child to buy a house, the parent knows they have an asset of value to claim against if their children don't pay the loan back. With property prices normally maintaining their value or going up, the risk that the borrowers won't have the money to repay the loan is lower.

A business loan doesn't offer the same low risk. A business needs funding to grow, however, what happens if it doesn't and the company goes into liquidation? The loan agreement will prove you are due to be repaid, but if there is no money to repay the loan (or not enough money) then the lender is out of pocket.

If you are lending to a business, then you should avoid a simple agreement and look for one that offers greater protections requiring the borrowers to give Personal Guarantees to personally repay the loan if the company goes into liquidation.

Business to consumer loans

Companies that offer loans to consumers can't use simple loan agreement templates. free or other, because they are required to provide additional information to the consumer. The obligations on a business are far greater than in a personal loan agreement between 2 consumers.

What happens if the borrower doesn't repay the loan?
When you have a loan agreement you can:

  • Inform the borrower of the default to the agreement;
  • If default not remedied - make an application to the county court here - Make a court claim for money

You'll need to provide evidence of the:

  • Loan agreement;
  • transfer of the loan to the borrower;
  • breach/default of the borrower; and
  • sum due to you under the loan agreement plus costs and interest.

If you don't have a loan agreement, then you are left with the challenge of proving the intentions between you and the borrower, what the terms you agreed were, and proof that there has been a default to the original terms agreed - if verbal, then this is hard to prove because of "he said, she said". This is all avoided when you have a signed, witnessed and dated loan agreement.

When a borrower stops repaying a loan it is often best to instruct a solicitor to warn the borrower of the breach and to support with your application to the county court. We have a panel solicitor who handles this type of work so contact us if you need help.

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Andrew Boast of Sam Conveyancing
Written by:
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Caragh Bailey, Digital Marketing Manager
Reviewed by:

Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.


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