Private Loan Agreement Between Friends in Australia: Free Sample and How to Write One
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.
Want the wording? Jump to the free sample loan agreement between friends.
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.
This article is general information, not legal or tax advice. For larger amounts or complex arrangements, consider speaking with a lawyer or accountant.
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?
A written private loan agreement is designed to meet the requirements of a valid contract under Australian law. If the borrower fails to repay, the lender can generally use the agreement as evidence in legal proceedings, including in small claims tribunals available in each state and territory — though whether a specific clause is enforceable depends on how it's written and the circumstances.
Sources: ASIC Moneysmart — Loans, Electronic Transactions Act 1999 (Cth).
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
Not sure what the repayment amount should be? Use our free loan repayment calculator — instantly shows the repayment amount, total interest, and a full schedule for any amount, rate and term.
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.
Sample Loan Agreement Between Friends (Australia)
Below is a simplified sample of a personal loan agreement for a straightforward, unsecured loan between two people. The parts in square brackets are the details you would change.
Date: [date]
Parties: [Full name] of [address] (Lender) and [Full name] of [address] (Borrower).
1. The loan. The Lender will lend the Borrower $[amount] (Loan) by bank transfer to [account details] on [date]. The Borrower confirms this money is a loan and not a gift.
2. Purpose. The Borrower will use the Loan for [purpose]. [Optional.]
3. Interest. [No interest is payable on the Loan.] OR [The Borrower will pay simple interest of [rate]% per year on the unpaid balance.]
4. Repayments. The Borrower will repay the Loan in [number] [weekly/fortnightly/monthly] instalments of $[amount], starting on [date], by bank transfer to [account details], with the full balance repaid by [final date].
5. Early repayment. The Borrower may repay all or part of the Loan early at any time, with no extra fee.
6. Missed payments. If a repayment is more than [14] days late, the Lender may give written notice asking the Borrower to fix it within [14] days. If it is not fixed, the Lender may require the whole unpaid balance to be repaid.
7. Records. Each party will keep a record of payments. The Lender will confirm the balance in writing when asked.
8. Changes. Any change to this agreement, including a payment pause or new repayment date, must be in writing and agreed by both parties.
9. Death of a party. This agreement binds each party's estate. [Optional. Change this if the loan should be forgiven instead.]
10. Governing law. This agreement is governed by the law of [State or Territory].
Signed: [Lender name, signature, date] [Borrower name, signature, date]
This sample is general information, not legal or tax advice, and has not been tailored to your circumstances. It is not designed for secured loans, loans to a company, or anyone who lends money as a business, where extra rules can apply. Interest you receive is generally taxable income. Use our loan repayment calculator to work out the instalments.
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 generally sufficient — it's designed to meet the requirements of a valid contract, though larger or more complex arrangements are worth a professional look.
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.
Create Your Loan Agreement Now
Describe your loan arrangement and get a properly drafted agreement ready to e-sign in minutes. From $3.99. See the full breakdown on our Private Loan Agreement page.
Start Your Agreement →Frequently Asked Questions
Is there a free loan agreement template between friends in Australia?
Yes. This guide includes a free sample loan agreement for a simple unsecured loan between two people. Change the details in square brackets, and get advice if the loan is large or secured against an asset.
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 a loan agreement be notarized in Australia?
Australia doesn't use notarization the way some other countries do — there's no equivalent requirement for a standard private loan agreement. What actually matters here is a properly drafted written agreement, signed by both parties (including validly via e-signature). If you need a document certified for use overseas, that's a separate process handled by a notary public, not something a standard loan agreement requires.
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 designed to work regardless of which state each party is in, since 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. See is an IOU legally binding? for what one does and does not prove.