Personal Loan Agreement Between Individuals

Overview

A personal loan agreement records a loan of money between two individuals (or, occasionally, an individual and a family member's company), setting out the amount lent, repayment terms, and any interest payable. Putting the loan in writing, even between family or friends, is strongly advisable — the absence of any record is one of the most common sources of family and personal disputes, and a written agreement makes clear whether money changing hands was a loan (repayable) or a gift (not repayable), which is otherwise often disputed after the fact. Consumer Credit Act 1974: most lending to individuals in the UK is regulated by the Consumer Credit Act 1974 and requires the lender to hold FCA authorisation. However, genuinely non-commercial, one-off loans between individuals who are not in the business of lending — for example a loan between family members or friends — generally fall outside the regulated consumer credit regime, since the lender is not acting "by way of business". This exemption should not be relied upon for someone who lends money to multiple people or does so as a source of income; regular or repeated lending arrangements risk being treated as a business of lending money and can trigger FCA authorisation requirements. Interest: parties are free to agree an interest rate (or no interest at all) for a genuinely private loan between individuals — there is no general statutory cap on interest rates for private, non-regulated lending in England and Wales, though a court retains a limited common law jurisdiction to refuse to enforce a rate that is truly extortionate or unconscionable in the specific circumstances. Key clauses: the loan amount, whether interest applies and at what rate, the repayment schedule (lump sum on a fixed date, or instalments), any security offered (rare for a personal loan but possible, e.g. a charge over an asset), what happens on default (e.g. the whole balance becoming immediately due), and early repayment terms. Common pitfalls: no written record at all, leading to a dispute later about whether money was a loan or a gift; unclear or missing repayment dates, making it hard to establish when the debt actually falls due (which also affects limitation — a simple contract debt is generally subject to a six-year limitation period under the Limitation Act 1980, running from the date payment first became due); and lending repeatedly to multiple borrowers as an informal sideline, which risks straying into regulated consumer credit territory without FCA authorisation.

Information to customize

• Lender's full name

• Lender's address

• Borrower's full name

• Borrower's address

• Loan amount

• Date the loan is advanced

• Interest rate (if any)

  Leave blank for an interest-free loan.

• Repayment terms (lump sum date, or instalment schedule)

• Security offered for the loan, if any

• What happens on default (e.g. full balance becomes due)

• Early repayment terms

• Date of signature

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Frequently asked questions

Do I need FCA authorisation to lend money to a friend or family member?

Generally no. A genuinely private, one-off loan between individuals, where the lender is not acting by way of business, falls outside the Consumer Credit Act 1974 regulated regime. But lending repeatedly to multiple people, or doing so as a source of income, risks being treated as a business of lending money, which would require FCA authorisation.

Is there a maximum interest rate I can charge on a private loan?

There is no general statutory cap on interest for a private, unregulated loan between individuals in England and Wales, though a court retains a limited jurisdiction to refuse to enforce a rate that is genuinely extortionate or unconscionable in the circumstances.

Why put a family loan in writing if we trust each other?

A written agreement is the clearest way to establish, later, whether money that changed hands was a loan (repayable) or a gift (not repayable) — one of the most common sources of family disputes arises precisely from the absence of any record of what was originally intended.

How long does the lender have to sue for repayment if the borrower defaults?

A simple contract debt is generally subject to a six-year limitation period under the Limitation Act 1980, running from the date the debt first became due — clear repayment dates in the agreement matter for establishing exactly when that clock starts.

Can I ask for security on a personal loan?

Yes, though it is unusual for informal personal loans. If security is agreed (for example a charge over an asset), it should be documented properly and may need separate registration depending on the asset and security type.

What happens if the borrower misses a repayment?

This is for the parties to agree in the default clause — a common approach is that the entire outstanding balance becomes immediately due and payable if a scheduled repayment is missed and not remedied within a stated period.

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