How to Write a Private Loan Agreement Between Friends in Australia
Lending money to a friend or family member is one of the most common sources of financial disputes in Australia. The loan itself is rarely the problem — it's the lack of a written agreement about how and when it gets paid back.
A private loan agreement protects both the lender and the borrower. It removes ambiguity, sets clear expectations, and gives both parties something to rely on if the arrangement goes sideways.
This guide covers everything you need to write a proper private loan agreement in Australia — including what to include, whether you need to charge interest, and how to make it legally binding.
What is a Private Loan Agreement?
A private loan agreement (also called a personal loan agreement or family loan agreement) is a written contract between two private individuals — typically friends or family members — that documents the terms of a loan. It records how much was lent, when it must be repaid, and whether any interest applies.
Unlike a bank loan, there's no formal application process. But having the terms in writing is just as important — arguably more so, because personal relationships are at stake.
Is a Private Loan Agreement Legally Binding in Australia?
Yes — a written private loan agreement is a legally binding contract under Australian law. If the borrower fails to repay, the lender can use the agreement as evidence in legal proceedings, including in small claims tribunals available in each state and territory.
A verbal loan agreement is also technically enforceable, but extremely difficult to prove. Without written terms, it becomes one person's word against another's — and courts are reluctant to make assumptions about what was agreed.
Even for loans between close friends or family, a written agreement is strongly recommended. It protects the relationship by removing any ambiguity about what was agreed — and makes it clear from the start that repayment is expected.
What to Include in a Private Loan Agreement
A well-drafted private loan agreement should cover the following key terms:
Party Details
- Full legal names of the lender and borrower
- Addresses of both parties
- Date the agreement is entered into
Loan Amount
- The exact amount being lent, in Australian dollars
- The date the funds are (or were) transferred
- The method of transfer (bank transfer, cash, etc.)
Repayment Terms
- Whether repayment is in a lump sum or instalments
- The amount of each repayment instalment
- The frequency of repayments (weekly, fortnightly, monthly)
- The date of the first repayment
- The final repayment date
Interest
- Whether interest applies (zero interest is perfectly valid)
- If interest applies — the annual interest rate
- How interest is calculated (simple or compound)
Default Provisions
- What constitutes a default (e.g. missing a repayment)
- What happens in the event of default (e.g. full balance becomes due)
- Any late payment fees
Signatures
- Signatures of both the lender and borrower
- Date of signing
- Witness signatures (optional but recommended for larger amounts)
Default clause tip: Include a clause that makes the entire remaining balance immediately due if the borrower misses a certain number of repayments. This prevents a situation where the borrower stops paying but technically hasn't "breached" the agreement because the final repayment date hasn't arrived yet.
Do You Need to Charge Interest?
No — you are not required to charge interest on a private loan in Australia. Many family and friend loans are made at zero interest, and this is perfectly valid. Simply state in the agreement that the loan is interest-free.
If you do charge interest, be aware that interest income is taxable and must be declared to the ATO. The ATO also publishes benchmark interest rates — if you lend to a related party at a rate significantly below market, there may be tax implications worth discussing with an accountant.
For most everyday private loans between friends, zero interest with a clear repayment schedule is the simplest and most common approach.
What if the Borrower Can't Repay?
If the borrower is unable to repay, your options depend on the amount involved and the relationship.
For smaller amounts, you may be able to pursue recovery through your state's small claims tribunal without a lawyer:
- Victoria — VCAT (up to $100,000)
- NSW — NCAT (up to $100,000)
- Queensland — QCAT (up to $25,000)
- WA — Magistrates Court (up to $75,000)
- SA — Magistrates Court (up to $12,000 in minor claims)
Your signed loan agreement will be the primary evidence in any tribunal or court proceeding. The clearer and more detailed it is, the stronger your position.
Do You Need a Lawyer to Write a Private Loan Agreement?
For most everyday private loans between individuals, you don't need a lawyer. A well-drafted agreement that covers the key terms above is sufficient and legally binding.
Consider engaging a lawyer if the loan amount is very large (over $50,000), if the loan is secured against an asset like property, or if there are complex arrangements around business interests or estate planning.
How to Create a Private Loan Agreement in Australia
The easiest way is to use SignedSorted. Describe your loan arrangement in plain English — the amount, the repayment schedule, whether there's interest — and our AI drafts a proper Australian-law agreement in seconds. Both parties e-sign digitally and receive a sealed PDF by email.
No printing, no scanning, no lawyer required. The whole process takes under 10 minutes and costs from $3.99.
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Start Your Agreement →Frequently Asked Questions
Does a private loan agreement need to be witnessed?
Witness signatures are not legally required for a private loan agreement in Australia, but they are recommended for larger loan amounts as they add an extra layer of evidence that the document was signed voluntarily.
Can I write a loan agreement after the money has already been lent?
Yes — you can document a loan agreement after funds have already been transferred. Simply note the original transfer date in the agreement. A retrospective agreement is still legally valid and far better than having no agreement at all.
What if the borrower is in another state?
The agreement is valid regardless of which state each party is in. Australian contract law applies nationwide. Both parties can e-sign digitally from wherever they are — no need to be in the same location.
Is a loan agreement the same as an IOU?
No. An IOU is an informal acknowledgment of debt with no repayment terms. A loan agreement is a detailed contract specifying exactly how and when the loan will be repaid. An IOU offers very limited legal protection compared to a proper loan agreement.